UNIVERSITY  OF  CALIFORNIA 
AT   LOS  ANGELES 


i 

•>  RUF  .."  «a-i  da'e  stamped  below 


SOUTHERN  BRANCH, 

UNIVERSITY  OF  CALIFORNIA, 

LIBRARY, 

LOS  ANGELES,  CALIF. 


Constitutional 


The  Works  of 

Alexander  Hamilton 


Edited  by 

Henry  Cabot  Lodge 


"  The  sacred  rights  of  mankind  are  not  to  be  rummaged  for  among  old  parchments  or 
rnmty  records.  They  are  written,  as  with  a  sunbeam,  in  the  whole  volume  of  human  nature, 
by  the  hand  of  the  Divinity  itself,  and  can  never  be  erased  or  obscured  by  mortal  power." 

[HAMILTON — The  Farmer  Refuted,  1775,  jEt.  18.] 

"  We  are  laboring  hard  to  establish  in  this  country  principles  more  and  more  national, 
and  free  from  all  foreign  ingredients,  so  that  we  may  be  neither  '  Greeks  nor  Trojans,'  but 
truly  Americans." — [HAMILTON  TO  KING,  1796,  /£t.  39.] 

44361 


Volume  III 


G.  P.  Putnam's  Sons 

New  York  and  London 
3be  Iknicfcerbocfcer  press 


-fctiiofcerbocbcr  Dress,  Hew  JOorh 


H 


CONTENTS 


FINANCE — Continued: 

VINDICATION  OF  THE  FUNDING  SYSTEM      .        .  3 

PAYMENTS  OF  PUBLIC  DEBT       ....  24 

Civis  TO  MERCATOR 28 

FACT 40 

PUBLIC  DEBT     .         .        .        ...        .  46 

LOANS .         .  61 

PUBLIC  FUNDS  . 137 

LOANS        .         . 139 

OBSERVER          .        .        .         .         .         .         .  177 

HAMILTON  TO  THE  SPEAKER  OF  THE  HOUSE  OF 

REPRESENTATIVES      .  .'                        .         .  178 

LOAN          . 179 

HAMILTON  TO  WASHINGTON       .  183 

HAMILTON  TO  A  COMMITTEE  OF  CONGRESS          .  185 

HAMILTON  TO  A  COMMITTEE  OF  CONGRESS          .  187 
WASHINGTON  TO  HAMILTON       .         .        .        .  "    190 

HAMILTON  TO  WASHINGTON       .        .        .         .  190 

HAMILTON  TO  WASHINGTON       .         .         ,         .  194 
HAMILTON  TO  THE  SPEAKER  OF  THE  HOUSE  OF 

REPRESENTATIVES       .         .         .         .         •  199 

PUBLIC  CREDIT 199 

IMPROVEMENT  OF  THE  REVENUE        .         .         .  301 
BUILDING  TAX  .         .         .         .         .        .         .312 

VOL.  III. 


iv  Contents 

PAGE 

NATIONAL  BANK: 

HAMILTON  TO  ROBERT  MORRIS,  1780          .         .  319 

HAMILTON  TO  ROBERT  MORRIS  ....  342 

NATIONAL  BANK 388 

WASHINGTON  TO  HAMILTON       ....  443 

HAMILTON  TO  WASHINGTON        ....  444 

HAMILTON  TO  WASHINGTON       ....  445 


FINANCE  (Continued) 


FINANCE  (Continued] 


VINDICATION    OF   THE    FUNDING   SYSTEM 

NUMBER  ONB 

I79i  (?) 

TT  was  to  have  been  foreseen,  that  though  the  virtu- 
'  ous  part  of  those  who  were  opposed  to  the  pre 
sent  Constitution  of  the  United  States,  while  in 
deliberation  before  the  people,  would  yield  to  the 
evidence  which  experience  would  afford  of  its  use 
fulness  and  safety,  there  were  opponents  of  a  certain 
character,  who,  as  happens  in  all  great  political  ques 
tions,  would  always  remain  incurably  hostile  to  it; 
that  in  the  course  of  its  administration  its  greatest 
merits  would  be  in  the  eyes  of  such  men  its  greatest 
blemishes,  its  most  brilliant  successes  to  them  occa 
sions  of  bitter  chagrin  and  envious  detraction,  its 
slightest  mismanagements  subjects  of  malignant  ex 
aggeration,  its  most  trivial  misfortunes  the  welcome 
topics  of  virulent  accusation  and  insidious  misrepre 
sentation. 

With  some  men  the  hardest  thing  to  forgive  is  the 
demonstration  of  their  errors, —  the  manifestation 
that  they  are  not  infallible.  Mortified  vanity  is  one 
of  the  most  corroding  emotions  of  the  human  mind; 


4  Alexander  Hamilton 

one  of  the  most  unextinguishable  sources  of  animosity 
and  hatred. 

It  was  equally  to  have  been  foreseen,  that  personal 
disappointments  would  be  likely  to  alienate  from  the 
government  some  individuals  who  had  at  first  advo 
cated  its  adoption,  perhaps  from  motives  not  the 
most  patriotic  or  commendable ;  that  personal  rival- 
ships  and  competitions  would  throw  others  into  an 
opposition  to  its  measures,  without  much  regard  to 
their  intrinsic  merits  or  demerits;  and  that  a  third 
class  would  embrace  the  path  of  opposition  as  the 
supposed  road  to  popularity  and  preferment,  raising 
upon  every  colorable  pretext  the  cry  of  danger  to 
liberty,  and  endeavoring  to  disseminate  among  the 
people  false  terrors  and  ill-grounded  alarms. 

Phenomena  like  these  have  deformed  the  political 
horizon,  and  testify  the  depravity  of  mankind,  in  all 
countries  and  at  all  times. 

It  was  likewise  to  have  been  expected  that  among 
the  well-meaning  friends  of  the  government,  there 
would  be  a  part,  competent  to  the  proper  manage 
ment  of  the  affairs  of  the  Union,  who,  sensible  from 
experience  of  the  insufficiency  of  the  former  system, 
gave  their  assent  to  the  substitute  offered  to  their 
choice,  rather  from  general  impressions  of  the  neces 
sity  of  a  change,  than  from  an  accurate  view  of  the 
necessary  compass  of  the  authorities  which  ought  to 
constitute  it. 

When  they  came  to  witness  the  exercise  of  those 
authorities  upon  a  scale  more  comprehensive  than 
they  had  contemplated,  and  to  hear  the  incendiary 
comments  of  those  who  will  ever  be  on  the  watch  for 


Funding  System  5 

pretexts  to  brand  the  proceedings  of  the  government 
with  imputations  of  usurpation  and  tyranny,  and  the 
factious  and  indiscreet  clamors  of  those  who,  in  and 
out  of  the  Legislature,  with  too  much  levity,  torture 
the  Constitution  into  objections  to  measures  which 
they  deem  inexpedient; — it  was  to  have  been  ex 
pected,  I  say,  that  some  such  men  might  be  carried 
away  by  transient  anxieties  and  apprehensions,  and 
might  for  a  moment  add  weight  to  an  opposition 
which  could  not  fail  to  grow  out  of  other  causes,  and 
the  real  objects  of  which  they  would  abhor. 

There  is  yet  another  class  of  men,  who,  in  all  the 
stages  of  our  republican  system,  either  from  desper 
ate  circumstances,  or  irregular  ambition,  or  a  mixture 
of  both,  will  labor  incessantly  to  keep  the  government 
in  a  troubled  and  unsettled  state,  to  sow  disquietudes 
in  the  minds  of  the  people,  and  to  promote  confusion 
and  change.  Every  republic  at  all  times  has  its 
Catilines  and  its  Caesars. 

Men  of  this  stamp,  while  in  their  hearts  they  scoff 
at  the  principles  of  liberty,  while  in  their  real  char 
acters  they  are  arbitrary,  persecuting,  and  intolerant, 
are  in  all  their  harangues  and  professions  the  most 
zealous;  nay,  if  they  are  to  be  believed,  the  only 
friends  to  liberty.  Mercenary  and  corrupt  them 
selves,  they  are  continually  making  a  parade  of 
their  purity  and  disinterestedness,  and  heaping  upon 
others  charges  of  peculation  and  corruption.  Ex 
travagant  and  dissipated  in  their  own  affairs,  they 
are  always  prating  about  public  economy,  and  railing 
at  the  government  for  its  pretended  profusion.  Con 
scious  that  as  long  as  the  confidence  of  the  people 


6  Alexander  Hamilton 

shall  be  maintained  in  their  tried  and  faithful  serv 
ants,  in  men  of  real  integrity  and  patriotism,  their 
ambitious  projects  can  never  succeed,  they  leave  no 
artifice  unessayed,  they  spare  no  pains  to  destroy 
that  confidence,  and  blacken  the  characters  that 
stand  in  their  way. 

Convinced  that  as  long  as  order  and  system  in  the 
public  affairs  can  be  maintained,  their  schemes  can 
never  be  realized,  they  are  constantly  representing 
the  means  of  that  order  and  system  as  chains  forged 
for  the  people.  Themselves  the  only  plotters  and 
conspirators,  they  are  for  ever  spreading  tales  of  plots 
and  conspiracies;  always  talking  of  the  republican 
cause,  and  meaning  nothing  but  the  cause  of  them 
selves  and  their  party ;  virtue  and  liberty  constantly 
on  their  lips,  fraud,  usurpation,  and  tyranny  in  their 
hearts. 

There  is  yet  another  class  of  opponents  to  the  gov 
ernment  and  its  administration,  who  are  of  too  much 
consequence  not  to  be  mentioned :  a  sect  of  political 
doctors;  a  kind  of  POPES  in  government;  standards 
of  political  orthodoxy,  who  brand  with  heresy  all 
opinions  but  their  own ;  men  of  sublimated  imagina 
tions  and  weak  judgments;  pretenders  to  profound 
knowledge,  yet  ignorant  of  the  most  useful  of  all 
sciences  —  the  science  of  human  nature;  men  who 
dignify  themselves  with  the  appellation  of  philoso 
phers,  yet  are  destitute  of  the  first  elements  of  true 
philosophy ;  lovers  of  paradoxes ;  men  who  maintain 
expressly  that  religion  is  not  necessary  to  society, 
and  very  nearly  that  government  itself  is  a  nuisance ; 
that  priests  and  clergymen  of  all  descriptions  are 


Funding  System  7 

worse  than  useless.  Such  men,  the  ridicule  of  any 
cause  that  they  espouse,  and  the  best  witnesses  to 
the  goodness  of  that  which  they  oppose,  have  no 
small  share  in  the  clamors  which  are  raised,  and  in 
the  dissatisfactions  which  are  excited. 

While  the  real  object  of  these  clamors,  with  the 
persons  most  active  in  propagating  them,  is  opposi 
tion  to  the  administration  of  it ;  while  they  are  strain 
ing  every  nerve  to  render  it  odious,  they  are  profuse 
in  their  professions  of  attachment  to  it.  To  oppose 
avowedly  the  work  of  the  people  would  be  too  bare 
faced.  It  would  not  accord  with  that  system  of 
treacherous  flattery,  which  is  the  usual  engine  of 
these  pretended  "friends,"  but  real  betrayers,  of  the 
people. 

Circumstances  require  that  the  mode  of  attack  be 
changed.     The  government  is  to  be  good,  if  not  ex 
cellent,  but  its  administration  is  to  be  execrable,— 
detestable, —  a  mere  sink  of  corruption;  a  deep-laid 
plan  to  overturn  the  republican  system  of  the  country. 

Suspicions  of  the  most  flagitious  prostitution  and 
corruption  in  office,  of  improper  connections  with 
brokers  and  speculators  to  fleece  the  community,  of 
the  horrid  depravity  of  promoting  wars,  and  the 
shedding  of  human  blood,  for  the  sake  of  sharing 
collusively  the  emoluments  of  lucrative  contracts, 
suspicions  like  these  are,  if  possible,  to  be  thrown 
upon  men,  the  whole  tenor  of  whose  lives  gives  the  lie 
to  them ;  who,  before  they  came  into  office,  were  never 
either  land- jobbers,  or  stock-jobbers,  or  jobbers  of 
any  other  kind;  who  can  appeal  to  their  fellow-citi 
zens  of  every  other  party  and  description  to  attest 


Alexander  Hamilton 

that  their  reputations  for  probity  are  unsullied,  that 
their  conduct  in  all  pecuniary  concerns  has  been 
nicely  correct  and  even  exemplarily  disinterested; 
who,  it  is  notorious,  have  sacrificed  and  are  sacrificing 
the  interests  of  their  families  to  their  public  zeal; 
who,  whenever  the  necessity  of  resisting  the  machin 
ations  of  the  enemies  of  the  public  quiet  will  permit 
them  to  retire,  will  retire  poorer  than  they  came  into 
office,  and  will  have  to  resume  under  numerous  dis 
advantages  the  pursuits  which  they  before  followed 
under  every  advantage.  Shame,  where  is  thy  blush? 
-  if  detraction  so  malignant  as  this  can  affront  the 
public  ear.  Integrity,  where  is  thy  shield?  where 
thy  reward  ? — if  the  poisonous  breath  of  an  unprinci 
pled  cabal  can  pollute  thy  good  name  which  thou 
incessantly  toiled  to  deserve. 

People  of  America,  can  ye  be  deceived  by  arts  like 
these  ?  Will  ye  suffer  yourselves  to  be  cheated  out  of 
your  confidence  in  men  who  deserve  it  most?  Will 
ye  be  the  dupes  of  hypocritical  pretenders  ? 

Think  for  yourselves.  Look  around  you.  Con 
sult  your  own  experience.  If  any  of  you  have 
doubts,  listen  calmly  and  dispassionately  to  the  argu 
ments  and  facts  which,  in  the  course  of  the  following 
numbers,  shall  be  opposed  to  the  suggestions  which 
would  persuade  you  that  the  administration  of  your 
government  has  been  in  the  aggregate  weak  or 
wicked,  or  both. 

NUMBER   TWO 

Of  all  the  measures  of  the  government,  that  which 
has  been  most  bitterly  inveighed  against  is  the  fund- 


Funding  System  9 

ing  system,  contained  in  the  act  making  provision  for 
the  debt  of  the  United  States.  As  well  for  this  rea 
son,  as  on  account  of  its  superior  importance,  the 
objections  which  have  been  made  to  it  are  entitled  to 
an  examination  in  the  first  place. 

It  is  a  curious  phenomenon  in  political  history  (not 
easy  to  be  paralleled),  that  a  measure  which  has  ele 
vated  the  credit  of  the  country  from  a  state  of  abso 
lute  prostration  to  a  state  of  exalted  pre-eminence, 
should  bring  upon  the  authors  of  it  obloquy  and 
reproach. 

It  is  certainly  what,  in  the  ordinary  course  of  hu 
man  affairs,  they  could  not  have  anticipated.  They 
are  not  here  chargeable  with  arrogance,  if  they  in 
dulged  from  it  the  hope  of  credit  and  applause ;  and  if 
the  clamors  which  have  been  raised  have  truly  pro 
ceeded,  as  the  clamorers  assure  us,  from  patriotic 
motives,  it  must  be  confessed  that  they  have  the  ad 
ditional  merit  of  novelty  and  singularity. 

There  must  be  something  original  in  the  passions  as 
well  as  in  the  ideas  of  the  sect  to  which  they  are 
attributable.  It  will  be  hardly  possible  not  to  be 
lieve,  that  some  mysterious  work  of  political  regen 
eration  has  begun  to  make  its  way  in  the  world,  and 
that  all  those  who  have  not  been  the  subjects  of  it  are 
in  a  state  of  pitiable  darkness  and  error. 

The  two  first  points  which,  in  considering  the  fund 
ing  system,  present  themselves  to  attention,  are  the 
existence  and  the  composition  of  the  debt  funded. 

A  person  who,  unacquainted  with  the  fact,  should 
learn  the  history  of  our  debt  from  the  declama 
tions  with  which  certain  newspapers  are  perpetually 


io  Alexander  Hamilton 

charged,  would  be  led  to  suppose  that  it  is  the  mere 
creature  of  the  present  government  for  the  purpose  of 
burthening  the  people  with  taxes,  and  producing  an 
artificial  and  corrupt  influence  over  them ;  he  would, 
at  least,  take  it  for  granted  that  it  had  been  con 
tracted  in  the  pursuit  of  some  wanton  or  vain  project 
of  ambition  or  glory;  he  would  scarcely  be  able  to 
conceive  that  every  part  of  it  was  the  relict  of  a  war 
which  had  given  independence  and  preserved  liberty 
to  the  country ;  that  the  present  government  found  it 
as  it  is,  in  point  of  magnitude  (except  as  to  the  dimi 
nutions  made  by  itself),  and  has  done  nothing  more 
than  to  bring  under  a  regular  regimen  and  provision 
what  was  before  a  scattered  and  heterogeneous  mass. 

And  yet  this  is  the  simple  and  exact  state  of 
the  business.  The  whole  of  the  debt  embraced  by 
the  provisions  of  the  funding  system  consisted  of  the 
unextinguished  principal  and  arrears  of  interest  of 
the  debt  which  had  been  contracted  by  the  United 
States  in  the  course  of  the  late  war  with  Great 
Britain,  and  which  remained  uncancelled,  and  the 
principal  and  arrears  of  interest  of  the  separate  debts 
of  the  respective  States  contracted  during  the  same 
period,  which  remained  outstanding  and  unsatisfied,  re 
lating  to  services  and  supplies  for  carrying  on  the  war. 
Nothing  more  was  done  by  that  system  than  to  in 
corporate  these  two  species  of  debt  into  the  mass,  and 
to  make  for  the  whole  one  general,  comprehensive 
provision. 

There  is,  therefore,  no  arithmetic,  no  logic,  by 
which  it  can  be  shown  that  the  funding  system  has 
augmented  the  aggregate  debt  of  the  country.  The 


Funding  System  n 

sum  total  is  manifestly  the  same;   though  the  parts 
which  were  before  divided  are  now  united. 

There  is,  consequently,  no  color  for  an  assertion 
that  the  system  in  question  either  created  any  new 
debt,  or  made  any  addition  to  the  old. 

And  it  follows  that  the  collective  burthen  upon  the 
people  of  the  United  States  must  have  been  as  great 
without  as  with  the  union  of  the  different  portions  and 
descriptions  of  the  debt.  The  only  difference  can 
be,  that  without  it  that  burthen  would  have  been 
otherwise  distributed,  and  would  have  fallen  with 
unequal  weight  instead  of  being  equally  borne  as  it 
now  is. 

These  conclusions  which  have  been  drawn  respect 
ing  the  non-increase  of  the  debt  proceed  upon  the  pre 
sumption  that  every  part  of  the  public  debt,  as  well 
that  of  the  States  individually  as  that  of  the  United 
States,  was  to  have  been  honestly  paid. 

If  there  is  any  fallacy  in  this  supposition,  the  infer 
ences  may  be  erroneous,  but  the  error  would  imply 
the  disgrace  of  the  United  States,  or  parts  of  them— 
a  disgrace  from  which  every  man  of  true  honor  and 
genuine  patriotism  will  be  happy  to  see  them  rescued. 

When  we  hear  the  epithets,  "vile  matter,"  "cor 
rupt  mass,"  bestowed  upon  the  public  debt,  and  the 
owners  of  it  indiscriminately  maligned  as  the  harpies 
and  vultures  of  the  community,  there  is  ground  to 
suspect  that  those  who  hold  the  language,  though 
they  may  not  dare  to  avow  it,  contemplate  a  more 
summary  process  for  getting  rid  of  debts  than  that  of 
paying  them.  Charity  itself  cannot  avoid  conclud 
ing  from  the  language  and  conduct  of  some  men  (and 


i2  Alexander  Hamilton 

some  of  them  of  no  inconsiderable  importance),  that 
in  their  vocabularies  creditor  and  enemy  are  synonym 
ous  terms,  and  that  they  have  a  laudable  antipathy 
against  every  man  to  whom  they  owe  money,  either 
as  individuals  or  as  members  of  the  society. 

It  has  been  said  that  the  sum  of  the  debt  to  be  ul 
timately  provided  for  has  been  artificially  increased  by 
the  plan  for  the  settlement  of  accounts  between  the 
United  States  and  individual  States.  This  point  will 
most  properly  be  the  subject  of  a  distinct  examina 
tion,  as  the  act  which  settles  the  accounts  is  a  distinct 
one  from  that  which  establishes  the  funding  system. 
It  will  appear,  upon  examination,  that  there  is  no 
foundation  for  the  assertion,  and,  moreover,  that  the 
plan  which  has  been  adopted  by  the  present  govern 
ment  for  the  settlement  of  the  accounts  is  essentially 
a  recapitulation  of  that  which  was  adopted  under 
the  Confederation,  and  which  established  principles 
which  were  not  only  equitable  in  themselves,  but 
could  not  have  been  reversed  without  an  infraction 
of  the  public  faith. 

NUMBER   THREE 

My  last  number  contained  a  concise  and  simple 
statement  of  facts  tending  to  show  that  the  public 
debt  was  neither  created  nor  increased  by  the  fund 
ing  system,  and,  consequently,  that  it  is  not  respons 
ible  either  for  the  existence  or  the  magnitude  of  the 
debt. 

It  will  be  proper  next  to  examine  the  allegations 
which  have  been  made  of  a  contrary  tendency. 

In  the  first  place,  it  is  asserted  that  the  debt  is 


Funding  System  13 

greater  than  it  ought  to  be,  because,  from  the  state  of 
depreciation  in  which  the  government  found  it,  a 
much  less  provision  for  it  than  that  which  was  made 
might  have  sufficed.  A  saving  of  nearly  one  half,  it 
is  said,  might  have  been  made  by  providing  for  it 
in  the  hands  of  alienees,  at  least  at  85.  or  105.  in 
the  pound,  who,  having  come  by  it  at  a  much  less 
rate,  would  have  been  well  compensated  by  such  a 
provision. 

To  a  man  who  entertains  correct  notions  of  public 
faith,  and  who  feels  as  he  ought  to  feel  for  the  reputa 
tion  and  dignity  of  the  country,  it  is  mortifying  to 
reflect  that  there  are  partisans  enough  of  such  a  doc 
trine  to  render  it  worth  the  while  to  combat  it.  It  is 
still  more  mortifying  to  know  that  in  that  class  are 
comprehended  some  men  who  are  in  other  respects 
sober-minded  and  upright,  friends  to  order,  and 
strenuous  advocates  for  the  rights  of  property. 

In  reasoning  upon  all  subjects,  it  is  necessary  to 
take,  as  a  point  of  departure,  some  principle  in  which 
reasonable  and  sound  minds  will  agree.  Without 
this  there  can  be  no  argument,  no  conclusion,  in 
moral  or  political  more  than  in  physical  or  mathe 
matical  disquisitions. 

The  principle  which  shall  be  assumed  here  is  this, 
that  the  established  rules  of  morality  and  justice  are 
applicable  to  nations  as  well  as  to  individuals;  that  the 
former  as  well  as  the  latter  are  bound  to  keep  their 
promises;  to  fulfil  their  engagements  to  respect  the 
rights  of  property  which  others  have  acquired  under 
contracts  with  them.  Without  this  there  is  an  end 
of  all  distinct  ideas  of  right  or  wrong,  justice  or 


1 4  Alexander  Hamilton 

injustice,  in  relation  to  society  or  government.  There 
can  be  no  such  thing  as  rights,  no  such  thing  as 
property  or  liberty ;  all  the  boasted  advantages  of  a 
constitution  of  government  vanish  into  air.  Every 
thing  must  float  on  the  variable  and  vague  opinions 
of  the  governing  party,  of  whomsoever  composed. 

To  this  it  may  be  answered  that  the  doctrine,  as  a 
general  one,  is  true,  but  that  there  are  certain  great 
cases  which  operate  as  exceptions  to  the  rule,  and  in 
which  the  public  good  may  demand  and  justify  a 
departure  from  it. 

It  shall  not  be  denied  that  there  are  such  cases ;  but 
as  the  admission  of  them  is  one  of  the  most  common 
as  well  as  the  most  fruitful  sources  of  error  and  abuse, 
it  is  of  the  greatest  importance  that  just  ideas  should 
be  formed  of  their  true  nature,  foundation,  and  ex 
tent.  To  minds  which  are  either  depraved  or  feeble, 
or  under  the  influence  of  any  particular  passion  or 
prejudice,  it  is  enough  that  cases  are  only  attended 
with  some  extraordinary  circumstances  to  induce  their 
being  considered  as  among  the  exceptions.  Con 
venience  is  with  them  a  substitute  for  necessity,  and 
some  temporary,  partial  advantage  is  an  equivalent 
for  a  fundamental  and  permanent  interest  of  society. 
We  have  too  often  seen  in  the  United  States  examples 
of  this  species  of  levity.  The  treaties  of  the  United 
States,  the  sacred  rights  of  private  property,  have 
been  too  frequently  sported  with,  from  a  too  great 
facility  in  admitting  exceptions  to  the  maxims  of 
public  faith  and  the  general  rules  of  property.  A 
desire  to  escape  from  this  evil  was  a  principal  cause 
of  the  union  which  took  place  among  good  men  to 


Funding  System  15 

establish  the  national  government;  and  it  behoved 
its  friends  to  have  been  particularly  cautious  how  they 
set  an  example  of  equal  relaxation  in  the  practice  of 
that  very  government. 

The  characteristics  of  the  only  admissible  excep 
tions  to  the  principle  that  has  been  assumed,  are — 
ist.  NECESSITY.  2d.  There  being  some  intrinsic 
and  inherent  quality  in  the  thing  which  is  to  consti 
tute  the  exception,  contrary  to  the  social  order  and  to 
the  permanent  good  of  society. 

Necessity  is  admitted  in  all  moral  reasoning  as  an 
exception  to  general  rules.  It  is  of  two  kinds,  as  ap 
plied  to  nations — where  there  is  want  of  ability  to 
perform  a  duty,  and  then  it  is  involuntary;  and 
where  the  general  rule  cannot  be  observed  without 
some  manifest  and  great  national  calamity. 

If  from  extraordinary  circumstances  a  nation  is  dis 
abled  from  performing  its  stipulations,  or  its  duty  in 
any  other  respect,  it  is  then  excusable  on  the  score 
of  inability.  But  the  inability  must  be  a  real,  not 
a  pretended,  one ;  one  that  has  been  experimentally 
ascertained,  or  that  can  be  demonstrated  to  the 
satisfaction  of  all  honest  and  discerning  men.  And 
the  deviation  ought  to  be  as  small  as  possible;  all 
that  is  practicable  ought  to  be  done. 

A  nation  is  alike  excusable  in  certain  extraordinary 
cases  for  not  observing  a  right  or  performing  a  duty, 
if  the  one  or  the  other  would  involve  a  manifest  and 
great  national  calamity.  But  here,  also,  an  extreme 
case  is  intended ;  the  calamity  to  be  avoided  must  not 
only  be  evident  and  considerable  —  it  must  be  such 
an  one  as  is  like  to  prove  fatal  to  the  nation,  as 


1 6  Alexander  Hamilton 

threatens  its  existence,  or  at  least  its  permanent 
welfare. 

War,  for  instance,  is  almost  always  a  national 
calamity,  of  a  serious  kind ;  but  it  ought  often  to  be 
encountered  in  protection  even  of  a  part  of  the  com 
munity  injured  or  annoyed;  or  in  performance  of 
the  condition  of  a  defensive  alliance  with  some  other 
nation. 

But  if  such  special  circumstances  exist  in  either 
case,  that  the  going  to  war  would  eminently  endanger 
the  existence  or  permanent  welfare  of  the  nation,  it 
may  excusably  be  forborne. 

Of  the  second  class  of  exceptions,  the  case  of  cer 
tain  feudal  rights,  which  once  oppressed  all  Europe, 
and  still  oppress  too  great  a  part  of  it,  may  serve  as 
an  example ;  rights  which  made  absolute  slaves  of  a 
part  of  the  community,  and  rendered  the  condition  of 
the  greatest  proportion  of  the  remainder  not  much 
more  eligible. 

These  rights,  though  involving  that  of  property, 
being  contrary  to  the  social  order,  and  to  the  per 
manent  welfare  of  society,  were  justifiably  abolished 
in  the  instances  in  which  abolitions  have  taken  place, 
and  may  be  abolished  in  all  the  remaining  vestiges. 

Wherever,  indeed,  a  right  of  property  is  infringed 
for  the  general  good,  if  the  nature  of  the  case  admits 
of  compensation,  it  ought  to  be  made ;  but  if  compen 
sation  be  impracticable,  that  impracticability  ought 
not  to  be  an  obstacle  to  a  clearly  essential  reform. 

In  what  has  been  said,  the  cases  of  exception  have 
been  laid  down  as  broad  as  they  ought  to  be.  They 
are  cases  of  extremity — where  there  is  a  palpable 


Funding  System  17 

necessity — where  some  great  and  permanent  national 
evil  is  to  be  avoided — where  some  great  and  perma 
nent  national  good  is  to  be  obtained.  It  must  not 
be  to  avoid  a  temporary  burthen  or  inconvenience — 
to  get  rid  of  a  particular,  though  a  considerable  evil, 
or  to  secure  a  partial  advantage.  A  relaxation  of 
this  kind  would  tend  to  dissolve  all  social  obligations 
— to  render  all  rights  precarious,  and  to  introduce  a 
general  dissoluteness  and  corruption  of  morals. 

A  single  glance  will  suffice  to  convince  that  the  case 
of  the  debt  of  the  United  States  was  not  one  of  those 
cases  which  could  justify  a  clear  infraction  of  the 
fundamental  rules  of  good  faith,  and  a  clear  invasion 
of  rights  of  property  acquired  under  the  most  un 
equivocal  national  stipulations. 

If  there  was  any  doubt  before,  the  real  facility  with 
which  a  provision  for  the  debt  has  been  made  removes 
it;  a  provision  which  touches  no  internal  source  of 
revenue  but  the  single  article  of  distilled  spirits,  and 
lays  upon  that  a  very  moderate  duty. 

But  a  history  of  the  real  state  of  the  debt  when  it 
was  taken  up  by  the  government  will  put  the  matter 
out  of  all  doubt.  This  shall  constitute  the  subject  of 
my  next  number. 


NUMBER   FOUR 


The  debt  proper,  or  the  original  debt  of  the  United 
States,  in  its  primary  sense,  may  be  classed  under 
four  general  heads:  ist,  the  old  emissions  of  Con 
tinental  money;  2d,  the  loan  office  debt,  contracted 
for  moneys  lent  to  the  government;  3d,  the  army 


1 8  Alexander  Hamilton 

debt,  contracted  for  the  pay  and  commutation  of  the 
army :  4th,  the  debt  of  the  five  great  departments,  as 
they  are  called  in  the  resolution  of  Congress,  being  for 
services  and  supplies  in  the  Marine  Department,  the 
Quartermaster's,  Commissary's,  Clothing,  and  Hos 
pital  Departments. 

Emanations  from  these  were  the  registered  debt,  so 
denominated  from  new  kinds  of  certificates  issued  by 
the  Register  of  the  Treasury  in  lieu  of  the  former  evi 
dences.  Indents  of  interest  being  a  species  of  paper 
payable  to  bearer,  which,  by  different  resolutions  of 
Congress,  were  issued  on  account  of  arrears  of  interest 
on  the  old  debt.  The  new  emission  money  is  not 
added  to  the  enumeration,  because  it  was  issued  upon 
funds  of  the  respective  States,  with  only  a  guaranty 
of  the  United  States,  and  falls,  perhaps,  most  pro 
perly,  in  the  class  of  State  debts. 

Of  this  original  debt,  it  appears  by  a  statement  of 
the  Register  of  the  Treasury,  published  Sept.  30, 
1791,'  not  less  than  $16,900,203  73  in  its  first  con 
coction,  belonged  to  citizens  of  the  States  from 
Pennsylvania  to  New  Hampshire  inclusively;  the 
remaining  belonging  to  States  from  Maryland  to 
Georgia  inclusively,  in  nearly  the  following  pro 
portions:  to  Maryland,  $1,697, 910  34;  to  Virginia, 
$1,024,104  26;  to  North  Carolina,  $28,994  75;  to 
South  Carolina,  $299,109  88;  to  Georgia,  $97,233  03. 
The  reasons  of  this  state  of  things  are  obvious.  Until 

1  This  date  and  all  the  figures  which  follow  are  blank  in  the  edition 
of  1850.  I  have  filled  them  from  the  Register's  report,  which  I  think 
must  be  the  one  referred  to,  of  Sept.  30,  1791.  (See  American  State 
Papers,  "  Finance,"  vol.  i.,  p.  149.) 


Funding  System  19 

the  year  1779  the  principal  theatre  of  the  war  had  been 
in  the  States  from  Pennsylvania  north ;  and  after  that 
period,  to  the  close  of  it,  the  principal  part  of  the 
enemy's  force  remained  stationary  at  New  York, 
which  obliged  the  keeping  up  in  the  same  quarter 
large  bodies  of  troops  till  the  termination  of  the  war. 

The  natural  consequence  of  this  state  of  things 
was,  that  a  very  large  proportion  of  the  means  for 
carrying  on  the  war — men,  money,  and  other  supplies 
—were  drawn  from  the  States  comprehended  in  the 
first  division.  They  indeed  possessed  greater  com 
parative  resources  than  the  more  southern  States, 
and  with  only  the  same  degree  of  zeal  could  furnish 
more  to  the  common  cause.  Obvious  causes  always 
conspire  to  occasion  larger  aids  to  be  drawn  from  the 
vicinity  of  the  war  than  from  more  distant  parts  of 
the  country,  and  the  main  dependence  of  the  United 
States  being  credit,  a  large  debt  was  created  in  the 
scene  from  which  the  principal  supplies  came. 

The  use  of  this  statement  of  the  original  distribu 
tion  of  the  debt  will  appear  hereafter. 

A  leading  character  of  every  part  of  the  debt  is, 
that  it  was  in  its  origin  made  alienable.  It  was  pay 
able  to  the  holder,  either  in  capacity  of  assignee  or 
bearer,  far  the  greatest  part  of  the  latter  description. 
The  contract,  therefore,  was,  in  its  very  issue,  a  con 
tract  between  the  government  and  the  actual  holder. 

A  considerable  part  of  the  debt  was  consequently 
alienated  by  the  first  proprietors  at  different  periods, 
from  its  commencement  down  to  the  time  of  passing 
the  funding  act. 

But  this  has  been  much  exaggerate  1,  both  as  to  the 


20  Alexander  Hamilton 

quantity  alienated  and  as  to  the  rates  of  alienation. 
The  declamations  on  the  subject  have  constantly 
represented  far  the  greatest  part  of  the  debt  in  the 
hands  of  alienees,  and  have  taken  the  lowest  price  at 
which  it  ever  was  in  the  market  as  the  common 
standard  of  the  alienation.  The  changes  have  been 
rung  upon  two  shillings  and  sixpence  in  the  pound, 
in  all  the  arguments  which  have  advocated  a  viola 
tion  of  the  rights  of  the  alienees. 

Neither  the  first  nor  the  last  supposition  is  true. 
As  to  the  first  point,  namely,  the  quantity  of  the  debt 
alienated,  there  are  no  documents  by  which  it  can 
be  satisfactorily  ascertained,  which  of  course  gives 
full  scope  to  imagination. 

But  there  is  an  important  fact  which  affords  strong 
evidence  that  the  quantity  has  always  been  much  less 
considerable  than  has  been  supposed. 

In  the  year  1786  the  State  of  New  York  passed  a 
law  permitting  the  holders  of  Continental  securities 
to  bring  them  in  and  receive  in  exchange  for  them 
State  securities  upon  certain  conditions,  which  were 
generally  deemed  for  the  advantage  of  the  holders  to 
accept.  The  same  arrangement  embraced  an  ex 
change  of  old  State  securities  for  new. 

In  the  event  of  this  exchange,  which  was  completed 
by  the  ist  of  May,  1787,  it  appeared  that  about  two 
thirds  '  of  the  debt  remained  in  the  hands  of  the 
original  proprietors. 


1  This  as  well  as  the  two  preceding  dates  is  blank  in  the  edition  of 
1850.  The  dates  are  filled  from  the  laws  of  New  York  for  1786.  The 
proportion  of  alienated  debt  I  have  calculated  from  the  returns  of  the 
State  Treasurer  of  New  York. — American  State  Papers,  "  Finance,"  i., 


Funding  System  21 

Alienations  after  this  period.     .     .     . 

It  may  be  stated  as  a  fact,  that  there  always  has 
prevailed  in  the  States  north  of  New  York,  a  more 
firm  confidence  in  an  eventual  provision  for  the  debt 
than  existed  in  that  State;  and  it  may  be  inferred 
that  the  alienation  was  still  less  in  those  States  than 
in  the  State  of  New  York. 

In  Jersey  and  Pennsylvania,  it  is  probable  that  the 
alienations  were  not  more  considerable  in  their  degree 
than  in  New  York.  In  Maryland  they  may  be  sup 
posed  to  have  been  still  less,  on  account  of  that  State 
having  made  a  better  provision  for  its  debt  than  any 
other,  and  having  included  in  it  Continental  securities 
in  the  hands  of  its  own  citizens  by  an  exchange  of 
certificates. 

It  is  probable  from  information,  though  not  cer 
tainly  known,  that  a  more  considerable  alienation  in 
proportion  had  taken  place  in  the  States  south  of 
Maryland.  But  making  all  due  allowance  for  this, 
and  taking  into  the  account  that  the  principal  part  of 
the  debt  was  originally  owned  from  Pennsylvania 
north,  the  probability  still  is,  that  the  progress  of 
alienation  has  been  much  less  rapid  than  has  been 
conjectured.  Nothing  is  more  natural  than  a  mis 
take  on  this  point.  The  dealers  in  the  debt  in  the 
principal  cities  appeared  to  be  continually  engaged 
in  buying  and  selling  large  sums ;  and  it  has  not  been 
their  fault  generally,  to  underrate  the  extent  of  their 

p.  30.  The  "Alienations"  since  May,  1787,  I  have  not  been  able  to 
ascertain.  This  defence  of  the  funding  system  was  not  apparently 
published,  hence  its  incomplete  state  and  the  consequent  blanks  for 
figures. 


22  Alexander  Hamilton 

dealings.  Thence  it  came  to  be  imagined  that  the 
whole  debt,  or  the  greatest  part  of  it,  was  in  the 
market;  whereas  a  small  sum  comparatively  was 
sufficient  to  satisfy  all  the  appearances.  Bandied 
incessantly  from  hand  to  hand,  a  few  hundred  thou 
sand  dollars  appeared  like  as  many  millions. 

The  best  inquiries  on  the  subject  will  lead  to  an 
opinion  that  there  never  was,  prior  to  the  funding 
system,  three  millions  of  dollars  of  floating  debt  in 
all  the  great  stock  markets  of  the  United  States. 
And  the  whole  sum  which  had  been  acquired  by 

foreigners,  was  about .  From  all  which  it  is 

very  questionable  whether  one  third  of  the  debt  in 
the  hands  of  alienees  at  the  time  when  Congress  be 
gan  to  deliberate  concerning  a  provision  for  it  would 
not  be  an  ample  allowance. 

With  regard  to  the  terms  of  alienation,  they  have 
varied  from  2os.  down  to  2$.  6d.  in  the  pound. 

There  are  several  considerable  classes  of  alienees, 
who  hold  the  debt  at  full  or  high  values : 

I.  Those  who  advanced  moneys  or  furnished  sup 
plies  to  public  officers  upon  loan-office  certificates, 
issued  to  those  officers  in  their  own  names.  An  ex 
ample  of  this  exists  in  the  cases  of  purchases  made 
during  the  war  by  public  officers.  Warrants  from  the 
Treasury  would  frequently  be  drawn  in  their  favor 
upon  the  commissioners  of  loans,  who  would  often 
furnish  loan-office  certificates  in  their  own  names  in 
payment  of  those  warrants.  For  these  certificates 
the  officers  would  sometimes  procure  the  current 
paper  in  exchange,  and  would  transfer  the  certificates 
to  those  who  advanced  the  money.  In  other  cases 


Funding  System  23 

they  would  pay  for  supplies  in  the  certificates  them 
selves,  which  they  would  in  like  manner  transfer. 
This  is  a  very  extensive  case. 

II.  Those  whose  money  has  been  placed  in  the 
funds  by  trustees  or  agents,  who  took  out  certificates 
in  their  own  names,  and  afterwards  assigned  them  to 
the  true  proprietors. 

An  instance  of  this  was  mentioned  in  the  debates  in 
Congress  on  the  subject  of  a  discrimination  between 
original  and  present  holders,  and  can  be  ascertained 
by  any  one  who  will  take  the  pains  to  inquire.  It 
was  that  of  a  Mr.  Caldwell,  a  respectable  clergyman 
and  zealous  patriot  in  New  Jersey,  who  acted  for  some 
time  dicing  the  war  in  the  capacity  of  deputy  quar 
termaster.  In  that  capacity  he  frequently  had 
money  to  pay  to  individuals,  which,  at  their  desire, 
he  would  place  in  the  loan-office  for  them,  take  certifi 
cates  in  his  own  name,  and  afterwards  transfer  them 
to  the  persons  whose  money  he  had  deposited.  There 
are  likewise  instances,  not  a  few,  of  trustees  and 
agents  for  absent  persons  and  minors,  who  placed  the 
moneys  of  those  whom  they  represented  in  the  loan- 
offices,  took  out  certificates  in  their  own  names,  and 
afterwards  transferred  them  to  the  parties  entitled. 

III.  Those  who,  by  laws  of  particular  States,  were 
compelled  to  take  certificates  at  the  full  value  in  pay 
ment  of  debts. 

A  law  of  the  State  of  New  York,  passed  in  the  year 

,  obliged  all  persons  who  had  resided  within  the 

British  lines  during  the  war  to  receive,  in  satisfaction 
of  their  debts  from  those  who  had  been  without  the 
lines,  certificates. 


24  Alexander  Hamilton 

IV.  Those  who,  at  different  periods,  voluntarily  re 
ceived  certificates  in  payment  of  debts.  This,  in 
some  States,  is  a  very  extensive  case.  From  the  pre 
carious  situation  in  which  all  persons  were  placed  by 
the  Revolution,  whose  property  was  merely  personal, 
it  was  no  uncommon  thing  for  creditors  to  receive 
from  their  debtors  certificates  in  payment  of  debts; 
and  this  was  almost  always  at  high  values. 

Even  since  the  peace,  compromises  between  cred 
itors  and  debtors,  especially  those  whose  fortunes  had 
been  injured  by  the  war,  in  which  certificates  were 
received  at  full  value. — C&tera  desunt. 


PAYMENTS    OP    PUBLIC   DEBT 

August  29,  1792. 

The  following  authentic  documents  respecting  the 
progress  which  has  been  made  by  the  present  Govern 
ment  of  the  United  States,  toward  extinguishing  the 
debts  contracted  under  the  former  Government,  will, 
it  is  presumed,  be  very  acceptable  to  the  people  of  the 
United  States ;  and  it  is  hoped  that  the  different  ed 
itors  of  newspapers  will  give  the  information  the 
general  circulation  which  its  importance  merits. 

i 

TREASURY  DEPARTMENT, 
REGISTER'S  OFFICE,  August  24,  1792. 

SIR: — I  have  the  honor  to  enclose  an  abstract  and 
statement  of  the  debt  incurred  by  the  late  Government, 
and  which  has  been  paid  off  from  the  funds  of  the  present 
Government,  amounting  to  one  million  eight  hundred 
and  forty -five  thousand  two  hundred  and  seventeen 


Payments  of  Public  Debt  25 

dollars  forty- two  cents;  but  this  sum  will  be  increased, 
when  the  balance  of  three  hundred  and  ninety-seven 
thousand  twenty-four  dollars  thirteen  cents,  remaining 
to  be  appropriated  to  the  further  purchase  of  the  public 
debt,  shall  be  applied,  and  which  more  particularly  ap 
pears  by  the  subjoined  statement. 

With  every  sentiment  of  the  highest  respect,  I  have 
the  honor  to  be,  Sir, 

Your  most  obedient  and  most  humble  servant, 

JOSEPH  NOURSE, 

Register. 
HON.  ALEXANDER  HAMILTON, 

Secretary  of  the  Treasury. 

II 

Statement  of  the  balance  which  remains  to  be  applied  to  the 
further  purchase  of  the  Public  Debt 

By  the  Act  passed  i2th  August,  1790,  making  pro 
vision  for  the  reduction  of  the  Public  Debt,  Section  2d, 
it  is  enacted,  That  all  such  surplus  of  the  product  of  the 
duties  arising  from  impost  and  tonnage  to  3ist  Decem 
ber,  1790,  after  satisfying  the  several  appropriations 
therein  specified,  shall  be  applied  to  the  purchase  of  the 
public  debt. 

The  product  of  said  duties  were  .  .  $3,026,070  65^ 
The  total  appropriations  were  .  .  1,687,194  81 


The  surplus  fund  to  3ist  December,  1790  $1,338,875  84^- 
Deduct  the  amount  paid  for  $1,456,743  18 

of  the  public  debt  extinguished  as 

per  abstract 941,851  69 

Leaves  a  balance  which  remains  to  be 
applied  to  the  further  purchases  of 
the  public  debt  ....  $397,024  15^ 


26  Alexander  Hamilton 

in 

An  abstract  Statement  of  the  sum  extinguished  of  the  Public 
Debt,  also  of  the  payment  from  the  funds  of  the  present 
Government  of  certain  claims  which  were  incurred  by  the 
late  Government. 

PURCHASES  OF  THE  PUBLIC  DEBT 

Amount  thereof  extinguished  .  .  .  $1,456,743  38 
Warrants  drawn  by  the  Board  of  Treasury 

under    the    late    Government,    and 

which  have  been  discharged  in  pur 
suance  of  the  Act  of  Congress  of  29th 

September,  1789  ....  157,789  94 

Civil  List:  for  various  payments  made 

upon  accounts  which  originated  under 

the  late  Government  .  .  .  25,768  50 

War  Department,  being  for  arrearages  of 

pay  due  to  sundry  officers  of  the  army, 

and  for  provisions  furnished  .  .  7 ,308  40 

Abraham  Skinner,  late  Commissary  Gen 
eral  of  Prisoners,  for  the  Board  of 

American  Prisoners  of  War  at  Long 

Island;     appropriated    by    Congress, 

per  their  Act  passed  1 2th  August,  1 790  38,683  13 
Representatives  of  Mr.  de  Decoudray, 

balance  of  pay 2,977  24 

Ditto  Hon.  John  Laurens,  his  salary  on  an 

embassy  to  the  French  Court  .  .  6,017  31 

Francis  Dana,  salary  on  an  embassy  to 

the  Court  of  St.  Petersburg  .  .  2,410  30 

Benson,  Smith,  and  Barker,  their  expenses 

attending    the    embarkation    of    the 

British  troops  at  New  York       .        .  1,000  oo 


Payments  of  Public  Debt  27 

His  Most  Christian  Majesty,  for  military 
and  ordnance  stores  supplied  to  Amer 
ican  ships  of  war  in  the  French  West 
Indies $  29,029  68 

Oliver  Pollock,  for  balance  due  him  for 
supplies  at  New  Orleans,  with  interest 
thereon,  in  conformity  with  the  sev 
eral  Acts  of  Congress  '.  .  .  108,605  oo 

MM.  Gardoqui  &  Son,  balance  due  for  sup 
plies  furnished  in  Spain  .  .  .  502  86 

$550,542  14 

Bills  of  exchange,  which  had  been  drawn 
on  Foreign  Commissioners,  not  paid 
by  them "  4,185  50 

Timothy  Pickering,  late  Quartermaster- 
General,  being  on  account  of  the  ap 
propriation  of  $40,000,  passed  July  i, 
1790  .  .  «  ^  ,  „:,:.'  .  2,077  89 

Grants  of  Congress,  viz.: 

John  McCord,  per  Act  of  Congress  of  ist 

July,  1790  ...  v  .  1,309  7i 

Jehoakim  M.  Tocksin,  per  Act  of  Congress 

of  the  26th  of  March,  1790  .  . .  ,  120  oo 

Baron  de  Glaubeck,  per  Act  of  29th  Sep 
tember,  1789  ...  .  .  .  140  26 

Seth  Harding,  per  Act  nth  August,  1790  .  200  oo 

Caleb  Brewster,  ditto,  ditto       .         .         .  348  57 

$2,118  54 


$1,845,217  42 
TREASURY  DEPARTMENT, 
Register's  Office,  August  23,  1792. 

JOSEPH  NOURSE, 

Register. 


28  Alexander  Hamilton 

CIVIS    TO    MERCATOR 


September  5,  1792. 

Certain  Treasury  documents  were  lately  published 
for  the  information  of  the  community,  without  any 
precise  designation  of  the  purpose  for  which  they 
were  published.  They  were  left  to  speak  for  them 
selves,  with  only  a  short  introduction,  denomin 
ating  them  "Authentic  documents  respecting  the 
progress  which  has  been  made  by  the  present  Govern 
ment  of  the  United  States  towards  extinguishing  the 
debts  contracted  under  the  former  Government." 

A  writer  in  this  Gazette "  of  Saturday  last,  under  the 
signature  of  Mercator,  has  thought  fit  to  come  for 
ward,  and,  assigning  what  he  conceives  to  be  the 
object  of  the  publication,  endeavors  to  show  that  the 
contrary  of  what  was  intended  is  true. 

What  right  had  Mercator  to  suppose,  that  any  thing 
more  was  intended,  than  simply  to  inform  the  public 
that  besides  a  punctual  payment  of  the  interest  on  the 
debt,  from  the  period  at  which  measures  were  matured 
to  begin  that  payment,  a  considerable  sum  of  the  Capital 
of  the  Debt  has  been  extinguished,  and  that  a  further 
sum  will  be  extinguished  by  a  provision  already  made? 
leaving  them  to  this  very  natural  inference,  which 

1  The  National  Gazette,  edited  by  Philip  Freneau.  This  newspaper 
and  its  editor,  as  is  well  known,  caused  the  outbreak  of  the  quarrel  be 
tween  Hamilton  and  Jefferson.  Hamilton  opened  his  attacks  in  re 
sponse  to  those  of  Freneau  just  before  the  appearance  of  this  letter. 
"Civis  to  Mercator"  has  hitherto  been  printed  among  the  essays  of  the 
Jefferson  controversy,  but,  as  it  is  simply  a  defence  of  the  funding 
system  against  the  attacks  of  Freneau,  it  seems  to  belong  more  properly 
here  among  the  writings  on  finance. 


Civis  to  Mercator  29 

will  be  drawn  by  every  candid  mind,  that  the  Gov 
ernment  has  been  as  attentive  as  circumstances  would 
permit,  at  so  early  a  period,  to  the  extinguishment  of 
the  debt. 

But  admitting  Mercator  to  be  right  in  his  sugges 
tion  of  the  object,  it  is  presumed  that  a  liberal  con 
struction  of  all  circumstances  will  justify  the  position, 
that  the  present  Government  has  reduced  the  debt  of 
the  former  Government  to  the  extent  expressed  in  the 
documents  which  have  been  published.  This  will  re 
sult,  if  it  shall  appear  that  provision  was  made  for  the 
interest  as  early  as  was  reasonably  practicable.  To 
have  paid  the  interest  from  that  period,  and  to  have 
sunk  so  much  of  the  capital  in  addition,  is,  in  fair  con 
struction,  to  have  reduced  the  debt  to  the  extent  of 
the  capital  sunk. 

When  Mercator  undertook  to  suppose  an  object 
which  was  not  declared,  he  ought  to  have  taken  care 
to  be  better  informed  and  more  accurate.  When  he 
undertook  to  state  an  account  with  the  Treasury 
Department,  he  ought  not  only  to  have  selected  just 
items,  to  have  adverted  to  dates,  times,  and  possibil 
ities,  but  he  ought  to  have  stated  the  whole  account. 

This  he  has  not  done ;  on  the  contrary  he  has  both 
misrepresented  and  suppressed  facts.  He  has  shown 
in  the  true  spirit  of  a  certain  junto  (who,  not  content 
with  the  large  share  of  power  they  have  in  the  gov 
ernment,  are  incessantly  laboring  to  monopolize  the 
whole  of  its  power,  and  to  banish  from  it  every  man 
who  is  not  subservient  to  their  preposterous  and  all- 
grasping  views) ,  that  he  has  been  far  more  solicitous 
to  arraign  than  to  manifest  the  truth — to  take  away, 


3O  Alexander  Hamilton 

than  to  afford  consolation  to  the  people  of  the  United 
States. 

The  following  particulars  are  proofs  of  his  want 
both  of  accuracy  and  candor. 

First. — He  charges  to  the  Treasury  Department 
arrears  of  interest  which  accrued  prior  to  its  existence, 
that  is,  from  the  ist  of  August,  1789;  whereas  the 
department  was  not  instituted  till  the  26.  of  Sep 
tember,  nor  organized  till  about  the  i3th,  when,  I  am 
informed,  the  Secretary  of  the  Treasury  entered  upon 
the  duties  of  his  office. 

Secondly. — He  takes  as  the  standard  of  his  calcula 
tion,  the  whole  amount  of  the  annual  interest  on  the 
whole  amount  of  the  public  debt,  as  it  exists  under 
the  present  funding  system,  including  all  the  arrears 
of  interest  made  principal,  and  the  $21,500,000  of  as 
sumed  debt — whereas  the  arrears  which  did  actually 
accumulate  to  the  end  of  the  year  1790,  were  only  on 
the  principal  of  the  foreign  and  domestic  debt,  and 
fall  short  more  than  a  million  of  dollars  of  the  sum  he 
states. 

These  simple  facts  prove  the  fallacy  of  his  state 
ment. 

But  the  principle  upon  which  he  proceeds  is  not 
less  absurd  than  his  calculations  are  fallacious. 

With  as  much  propriety  might  an  executor  be 
charged  with  increasing  the  debts  of  his  testator,  by 
suffering  the  arrears  of  interest  on  his  bonds  and 
notes  to  accumulate,  while  he  was  collecting,  arrang 
ing,  and  disposing  of  the  estate,  as  the  present  Gov 
ernment,  or,  if  the  phrase  is  preferred,  the  present 
Treasury  Department,  may  be  charged  with  those 


Civis  to  Mercator  31 

arrearages  which  unavoidably  accrued  during  the 
preparatory  measures  for  bringing  the  resources  of 
the  public  estate  into  activity.  With  as  much  reason 
might  it  be  charged  with  the  $13,000,000  of  interest, 
which  accumulated  under  the  imbecile  system,  the 
old  Confederation,  to  which,  if  not  to  worse, — a  dis 
solution  of  the  Union! — the  designs  of  the  junto 
evidently  point  or  tend. 

When,  proceeding  upon  grounds  so  loose  and  un 
just,  Mercator  makes  the  extraordinary  declaration, 
that  the  Secretary  of  the  Treasury  "  has  produced  an 
actual  addition  to  the  public  debt  of  more  than  one 
million  and  a  half  of  dollars,"  is  it  not  palpable,  that 
in  the  most  malignant  spirit  of  party  he  is  endeavor 
ing  to  destroy  the  public  confidence  in  that  officer,  no 
matter  how  unfair  the  means,  as  one  link  in  the  chain 
of  measures  by  which  the  domineering  aims  of  his 
party  are  to  be  effected,  or  the  cause  of  confusion  pro 
moted?  Is  it  not  clear  that,  in  the  language  and 
conceptions  of  Mercator,  to  provide  for  a  debt  and  to 
" produce"  it,  amount  to  the  same  thing? 

To  form  a  still  better  estimate  of  the  spirit  by 
which  he  is  actuated,  let  there  be  a  review  of  some 
leading  facts. 

Congress  met  under  the  present  Government  on  the 
ist  of  April,  1789.  To  put  it  in  motion  they  had  a 
vast  and  very  arduous  work  before  them.  This  was 
of  course  a  primary  object ;  a  provision  for  the  debt,  a 
secondary  one.  It  was  natural  then,  that  the  first 
session  should  have  been  exhausted  in  organizing  the 
Government,  and  that  a  systematic  provision  for 
the  debt  should  be  postponed,  as  in  fact  it  was,  to  the 


32  Alexander  Hamilton 

second  session.  A  temporary  and  partial  provision 
of  revenue  only  was  accordingly  made  by  very 
moderate  duties  of  impost,  far  short  of  an  adequate 
fund  for  the  support  of  Government  and  the  payment 
of  the  interest  on  the  debt,  to  take  effect  on  the  ist  of 
August,  1789;  which  was  as  early  as  the  law  could 
be  promulgated  throughout  the  Union,  and  the  sub 
ordinate  executive  arrangements  made  for  carrying 
it  into  execution. 

It  has  been  stated  that  the  Treasury  Department 
began  to  be  in  activity  on  the  i3th  of  September. 
Congress  adjourned  on  the  2yth  of  that  month,  after 
having  instructed  the  Secretary  of  the  Treasury  to 
report  concerning  the  debt  at  the  ensuing  session.  It 
is  to  be  recollected  that  without  an  order  of  the  House 
that  officer  can  propose  nothing. 

It  is  evident  that  there  was  no  responsibility  on  the 
side  of  that  department  for  the  accumulation  of  in 
terest  on  the  debt  until,  at  earliest,  the  second  session, 
which  began  on  the  yth  of  January,  1790. 

On  Thursday,  the  i4th  of  January,  the  Secre 
tary  of  the  Treasury  submitted  to  the  House  of 
Representatives,  according  to  order,  the  plan  of  a 
provision  for  the  public  debt,  comprehending  an  addi 
tional  provision  of  revenue  for  the  purpose  of  facing 
the  interest.  But  it  was  not  till  the  4th  of  August 
that  the  principles  of  a  provision  for  the  debt  were  de 
termined  by  law,  nor  till  the  roth  of  the  same  month 
that  a  supplementary  fund  was  established  for  paying 
the  interest  upon  it ;  and  from  considerations  of  an  ob 
vious  nature  the  commencement  of  this  fund  in  oper 
ation  was  deferred  to  the  ist  of  January  following. 


Civis  to  Mercator  33 

Here,  again,  't  is  manifest  that  there  was  no  re 
sponsibility  in  the  Treasury  Department  for  the  ac 
cumulation  of  interest  up  to  the  period  from  which 
it  has  been  punctually  paid — namely,  the  ist  of 
January,  1791, — because  it  was  not  in  the  power  of 
that  department  to  have  accelerated  a  provision  for 
it.  Nor  will  any  blame  justly  light  upon  Congress  for 
the  moderate  delay  which  ensued.  It  was  their  duty 
to  bestow  much  deliberation  upon  the  subject.  Much 
difference  of  opinion — much  discussion — a  consider 
able  loss  of  time,  were  to  be  expected  in  relation  to  a 
subject  so  momentous,  so  perplexing,  touching  so 
differently  so  many  chords  of  passion  and  interest. 

The  law  providing  for  the  debt  having  passed,  the 
Secretary  of  the  Treasury  immediately  seized  the  op 
portunity  which  was  afforded  by  an  unappropriated 
surplus  of  revenue  to  the  end  of  the  year  1790  to 
make  an  impression  on  the  debt.  He  proposed  that 
it  should  be  applied  to  purchases  of  the  debt  at  its 
market  prices,  which  was  agreed  to  by  Congress,  and 
has  been  carried  into  execution  as  far  as  circum 
stances  have  hitherto  permitted. 

This  was  certainly  the  best  application  that  could 
have  been  made  of  the  fund.  It  was  equally  the  in 
terest  of  the  Government  and  of  the  public  creditors : 
—of  the  Government,  because  it  was  a  clear  gain  of 
all  the  difference  between  the  sum  of  specie  paid  and 
the  sum  of  debt  redeemed,  which  is  already  $514,- 
891  69,  and  will  be  more  when  the  remaining  sum 
appropriated  comes  to  be  applied  to  further  pur 
chases  ;  because  it  was  a  clear  saving  to  the  nation  of 
all  the  difference  in  price  which  was  paid  by  foreigners 

VOL.   HI.— 3. 


34  Alexander  Hamilton 

in  their  purchases,  in  consequence  of  the  competition 
of  the  Government  in  the  market  as  a  purchaser.  It 
is  well  known  to  every  well-informed  man  that  the 
rapid  appreciation  of  the  debt  was  materially  owing 
to  that  circumstance,  and  of  course  the  saving  to  the 
nation  by  it  has  been  very  considerable.  The  meas 
ure  in  question  was  equally  beneficial  to  the  public 
creditors — because,  if  the  fund  applied  to  purchases 
had  been  apportioned  among  them  in  payment  of 
interest,  it  would  have  been  a  mere  pittance;  but 
applied  as  it  was,  it  gave  a  rapid  spring  to  the  whole 
value  of  the  stock. 

As  it  is  therefore  proved  that  the  Treasury  Depart 
ment  is  chargeable  with  no  delay  with  regard  to  a 
provision  for  the  debt,  occasioning  an  unnecessary 
accumulation  of  interest,  in  a  question  of  merit  re 
specting  that  department  which  MERCATOR  has 
raised,  it  will  follow  that  the  department,  on  account 
of  the  operations  which  have  been  advised  by  it,  has 
an  unbalanced  claim  of  merit  with  the  community — 

i  st. — For  all  that  has  been  or  shall  be  saved  by 
purchases  of  the  public  debt  at  the  market  prices. 

2d. — For  all  that  has  been  saved  to  the  nation,  for 
the  more  advanced  prices  given  by  foreigners  in  their 
purchases  of  the  debt. 

But  there  are  other  items  of  importance  to  be 
placed  on  the  same  side  of  the  account. 

i  st. — The  saving  resulting  from  the  reduced  rate 
on  the  new  loans  for  paying  off  the  foreign  debt. 

2d. — The  positive  gain  of  1,000,000  of  dollars,  by 
the  institution  of  the  Bank  of  the  United  States.  The 
stock  of  the  bank  being  at  an  advance  of  50  per  cent., 


Civis  to  Mercator  35 

it  is  clear  that  the  Government,  by  having  become  a 
proprietor  to  the  extent  of  2,000,000  of  dollars,  has  by 
this  single  operation  made  an  actual  net  profit  of 
1,000,000  of  dollars — that  is,  it  can  get  three  millions 
for  what  will  have  cost  it  only  two. 

I  add  nothing  for  any  saving  which  has  accrued 
from  the  particular  modification  of  the  domestic  debt, 
for  two  reasons:  one,  because  the  subject  being  more 
complicated  would  require  more  illustration ;  and  the 
other,  because  the  plan  adopted  by  the  Legislature, 
though  having  the  leading  features  of  that  proposed 
by  the  Treasury  Department,  differs  from  it  in  some 
material  respects, — a  strong  refutation  of  the  idea,  so 
industriously  inculcated,  that  the  plans  of  that  de 
partment  are  implicitly  followed  by  the  Legislature, 
and  a  decisive  proof  that  they  have  had  no  more 
weight  than  they  ought  to  have  had — that  is  to  say, 
than  they  were  entitled  to  from  their  intrinsic  reason 
ableness  in  the  unbiassed  and  independent  judgment 
of  majorities  in  the  two  Houses  of  Congress.  The 
result  of  what  has  been  said  is  this:  that  provision 
was  made  for  paying  the  interest  of  the  debt  as  early 
as  could  reasonably  have  been  expected;  that  no 
negligence  having  happened,  the  arrears  of  interest 
which  have  accumulated  in  the  interval  are  properly  a 
part  of  the  debts  of  the  former  Government;  and 
consequently,  that  the  sums  which  appear  to  have 
been  absorbed  are  so  much  of  the  debts  of  the  old 
Government  extinguished  by  the  new. 

Mercator  brings  as  a  proof  that  the  public  debt  has 
increased  and  is  increasing,  what  he  terms  "  the  pre 
sent  amount  and  increasing  weight  of  the  duties  of 


36  Alexander  Hamilton 

impost  and  excise."  Let  facts  decide  the  soundness 
of  this  logic.  In  the  last  session  of  Congress,  the  only 
excise  duty  which  exists  was  reduced  upon  an  aver 
age  fifteen  per  cent.  The  only  addition  which  was 
then  made  to  the  imposts  was  for  carrying  on  the 
Indian  war,  and  by  avoiding  recourse  to  permanent 
loans  for  that  purpose,  to  avoid  an  increase  of  the  debt. 
How  then  can  that  which  was  done  to  avoid  an  in 
crease  of  debt,  be  a  proof  that  it  has  increased? 

Civis. 
ii 

PHILADELPHIA,  September  n,  1792. 

Little  other  notice  of  the  futile  reply  of  Mercator  to 
Civis  is  necessary,  than  merely  to  put  in  a  clear  light 
the  erroneousness  of  the  standard  which  he  has 
adopted  for  calculating  the  arrears  of  interest  to  the 
end  of  the  year  1790. 

He  takes  for  his  standard,  the  present  annual  in 
terest  on  the  whole  amount  of  the  public  debt,  as  pro 
vided  for  under  the  funding  system — that  is,  ist.  Upon 
the  former  principal  of  the  foreign  and  domestic  debt ; 
2d.  Upon  the  arrears  of  interest  of  that  principal, 
which  on  the  ist  of  January,  1791,  and  not  before,  be 
came  principal,  by  the  provisions  of  the  funding  law; 
3d.  Upon  the  whole  amount  of  the  assumed  debt 
—that  is,  $21,500,000. 

Now,  the  fact  is,  that  the  only  arrears  which  can 
colorably  be  computed  are  those  on  the  principal  of 
the  foreign  and  domestic  debt,  according  to  the  terms 
of  interest  which  they  actually  bore  up  to  the  ist 
January,  1791.  ist.  Because,  in  fact,  the  arrears  of 


Civis  to  Mercator  37 

interest  on  that  principal  did  not  bear  interest  till  the 
ist  of  January,  1791;  and  consequently  no  interest 
whatever  accrued  upon  them.  And  2d,  because  the 
Government  of  the  United  States  took  up  the  State 
debts  as  they  stood  at  the  end  of  the  year  1791.  If 
arrears  of  interest  accumulated  in  the  meantime, 
't  was  the  affair  of  the  State  governments,  which  were 
the  debtors  and  alone  responsible  for  a  provision  for 
it,  not  of  the  Government  of  the  United  States,  which 
only  became  responsible  by  virtue  of  the  assumption 
from  the  time  that  it  took  effect — that  is,  from  the 
ist  of  January,  1792,  from  which  period  the  interest 
has  been  punctually  paid.  This  is  the  true  view  of 
it,  unless  it  can  be  shown  that  the  Government  of  the 
United  States  is  answerable  for  the  neglects  and 
omissions  of  the  State  governments.  But  what 
arrears  may  have  really  accumulated  on  this  part  of 
the  debt  is  unknown,  as  it  is  understood  there  was 
in  some  States  a  provision  for  the  interest. 

Calculating  then  the  arrears  which  did  actually 
accrue — that  is,  on  the  principal  and  interest  of  the 
foreign  and  domestic  debt,  the  former,  according  to 
the  various  rates  which  were  stipulated  upon  it,  and 
the  latter  at  six  per  cent.,  the  rate  which  it  then  bore, 
from  the  ist  of  August,  1789,  to  the  ist  of  January, 
1791,  from  which  period  interest  has  been  paid, 
the  amount  is  $3,003,378  47 — that  is,  $1,032,980  72 
less  than  the  amount  of  the  arrears  for  the  same 
period  by  Mercator.  This  statement  is  not  made 
from  any  secret  sources  of  information,  but  from 
documents  long  since  in  the  possession  of  the  public. 
If  Mercator  has  been  inattentive  to  the  means  of 

44861 


38  Alexander  Hamilton 

information  he  ought  not  to  come  forth  the  instructor 
of  his  fellow-citizens. 

In  a  mere  question  of  the  increase  and  decrease  of 
the  public  debt,  if  the  arrears  of  interest  which  ac 
crued  on  the  assumed  debt,  up  to  the  period  from 
which  the  United  States  began  to  pay  interest  upon 
it,  be  placed  on  one  side  of  the  account,  the  saving  or 
reduction,  by  the  nature  of  the  provision  for  it,  ought 
to  be  placed  on  the  other  side,  and  the  balance  will  be 
in  favor  of  the  United  States. 

Had  Mercator  stated  an  account  with  the  Treasury 
Department  on  his  own  principle  candidly  applied — 
namely,  that  of  setting  off  the  surplus  of  revenue  to 
the  end  of  the  year  1790  against  the  amount  of  the 
debt  redeemed  by  purchasers  and  payments,  the 
account  would  have  stood  thus: 

Debtor  Side 
To  amount  of  surplus  revenue  at  the  end 

of  the  year  1790         ....  $1,338,875  84 

Credit  Side 
By  the  amount  of  the  sum  which  appears 

by  the  statement  of  the  Register  of 

the  Treasury  to  have  been  redeemed 

and  paid  off $1,845,217  42 

By  sum  remaining  to  be  applied        .         .        397,02413 

$2,242,241  55 


Balance        ....      $903. 365  71 

being  the  amount  of  the  public  debt  actually  reduced 
beyond  the  amount  of  the  funds  remaining  on  hand 


Civis  to  Mercator  39 

at  the  commencement  of  the  operation  of  the  funding 
system,  in  virtue  of  antecedent  provision,  and  exclu 
sive  of  reductions  on  the  rates  of  interest. 

As  to  the  concluding  remarks  of  Mercator,  they 
depart  from  the  question.  'T  is  no  matter,  in  refer 
ence  to  that,  whether  the  items  which  were  mentioned 
are  circumstances  of  temporary  expedient  or  results 
of  the  soundest  policy.  They  constitute  positive 
savings  and  gains  to  the  nation. 

But  it  was  not  sufficient  for  Mercator  to  assert ;  he 
ought  to  have  shown  what  sacrifice  of  justice  or  prin 
ciple  was  involved  in  them.  Not  having  done  it,  it 
is  sufficient  to  observe  that  one  good  effect  of  the 
measures  of  finance  which  have  been  adopted  by 
the  present  Government  is  at  least  unequivocal.  The 
public  credit  has  been  effectually  restored.  This  may 
be  in  the  eyes  of  Mercator  of  little  moment.  There 
are  certain  theorists  who  hold  both  private  and  public 
credit  to  be  pernicious.  But  their  disciples  are  not 
numerous ;  at  least  among  sober  and  enlightened  men. 

The  actual  benefits  or  actual  evils  of  the  measures 
connected  with  the  Treasury  Department,  present 
and  future,  would  be  cheerfully  submitted  to  the 
TEST  OF  EXPERIENCE.  Happy  would  it  be  for  the 
country,  honorable  for  human  nature,  if  the  experi 
ment  were  permitted  to  be  fairly  made.  But  the 
pains  which  are  taken  to  misrepresent  the  tendency 
of  those  measures,  to  influence  the  public  mind,  to 
disturb  the  operations  of  the  Government,  are  a  de 
cided  proof,  that  those  to  whom  they  are  attributable 
dare  not  trust  the  appeal  to  such  a  TEST.  Con 
vinced  of  this,  they  have  combined  all  their  forces, 


4°  Alexander  Hamilton 

and  are  making  one  desperate  effort  to  gain  an  as 
cendency  in  the  public  councils,  by  means  of  the 
ensuing  election,  in  order  to  precipitate  the  laudable 
work  of  destroying  what  has  been  done. 

Civis. 


FACT 

For  the  National  Gazette 

September  n,  1792. 

Much  declamation  has  been  indulged  against  cer 
tain  characters,  who  are  charged  with  advocating  the 
pernicious  doctrine,  that  "public  debts  are  public 
blessings,"  and  with  being  friends  to  a  perpetuation 
of  the  public  debt  of  the  country.  Among  these 
characters,  if  the  Secretary  of  the  Treasury  has  not 
been  named,  he  has  been  pretty  plainly  alluded  to. 
It  is  proper  to  examine  what  foundation  there  is, 
then,  for  those  charges. 

That  officer,  it  is  very  certain,  explicitly  main 
tained,  that  the  funding  of  the  existing  debt  of  the 
United  States  would  render  it  a  national  blessing; 
and  a  man  has  only  to  travel  through  the  United 
States  with  his  eyes  open,  and  to  observe  the  invigor- 
ation  of  industry  in  every  branch,  to  be  convinced 
that  the  position  is  well  founded. 

But,  whether  right  or  wrong,  it  is  quite  a  different 
thing  from  maintaining,  as  a  general  proposition,  that 
a  public  debt  is  a  public  blessing ;  particular  and  tem 
porary  circumstances  might  render  that  advantage 
ous  at  one  time,  which  at  another  might  be  hurtful. 

It  is  known  that  prior  to  the  Revolution,  a  great 


Fact  41 

part  of  the  circulation  was  carried  on  by  paper 
money;  that  in  consequence  of  the  events  of  thev 
Revolution,  that  resource  was  in  a  great  measure 
destroyed,  by  being  discredited,  and  that  the  same 
events  had  destroyed  a  large  proportion  of  the 
moneyed  and  mercantile  capital  of  the  country,  and 
of  personal  property  generally.  It  was  natural  to 
think  that  the  chasm  created  by  these  circumstances 
required  to  be  supplied,  and  a  just  theory  was  suf 
ficient  to  demonstrate,  that  a  funded  debt  would 
answer  the  end.  To  infer  that  it  would  have  such 
an  effect,  was  no  more  to  maintain  the  general  doc 
trine  of  " public  debts  being  public  blessings,"  than 
the  saying,  that  paper  emissions,  by  the  authority  of 
Government,  were  useful  in  the  early  periods  of  the 
country,  was  the  maintaining  that  they  would  be 
useful  in  all  the  future  stages  of  its  progress. 

But  to  put  the  matter  out  of  all  doubt,  and  to  show 
how  destitute  of  candor  the  insinuations  against  the 
Secretary  of  the  Treasury  on  this  head  have  been,  I 
have  extracted,  and  shall  insert  here,  some  passages 
from  some  of  his  reports  to  the  House  of  Representa 
tives,  by  which  it  will  be  seen  that  his  conduct  as  well 
as  his  language  have  been  in  uniform  opposition  to 
the  doctrine  charged  upon  him.  The  length  of  these 
reports,  it  is  probable,  has  prevented  many  well- 
disposed  persons  from  being  acquainted  with  their 
contents,  the  presumption  of  which  emboldens  the 
calumniators  of  public  characters  and  measures  to 
make  assertions,  of  the  falsehood  of  which  the  mere 
perusal  of  official  documents  would  convict  them. 

Extract  from  a  report  of  the  Secretary  of  the 


42  Alexander  Hamilton 

Treasury  on  the  subject  of  a  provision  for  the  public 
debt,  presented  the  i4th  of  January,  1790.  "Per 
suaded,  as  the  Secretary  is,  that  the  proper  funding  of 
the  present  debt  will  render  it  a  national  blessing ;  yet 
he  is  so  far  from  acceding  to  the  position,  in  the  lati 
tude  in  which  it  is  sometimes  laid  down,  that '  public 
debts  are  public  benefits, '  a  position  inviting  to  prod 
igality,  and  liable  to  dangerous  abuse,  that  he  ardently 
wishes  to  see  it  incorporated,  as  a  fundamental  maxim 
in  the  system  of  public  credit  of  the  United  States,  that 
the  creation  of  debt  should  always  be  accompanied  with 
the  means  of  extinguishment.  This  he  regards  as  the 
true  secret  for  rendering  public  credit  immortal.  And 
he  presumes  that  it  is  difficult  to  conceive  a  situation 
in  which  there  may  not  be  an  adherence  to  the 
maxim.  At  least  he  feels  an  unfeigned  solicitude  that 
this  may  ba  attempted  by  the  United  States,  and 
that  they  may  commence  their  measures  for  the 
establishment  of  credit  with  the  observance  of 
it." 

Extracts  from  a  report  of  the  Secretary  of  the 
Treasury  on  manufactures,  presented  the  5th  Decem 
ber,  1791. 

After  using  several  arguments  to  illustrate  the 
operation  of  a  funded  debt  as  capital,  the  Secretary 
concludes  thus:  "There  are  respectable  individuals 
who,  from  a  just  aversion  to  an  accumulation  of  public 
debt,  are  unwilling  to  concede  to  it  any  kind  of 
utility,  who  can  discover  no  good  to  alleviate  the  ill 
with  which  they  suppose  it  pregnant,  who  cannot 
be  persuaded  that  it  ought  in  any  sense  to  be  viewed 
as  an  increase  of  capital,  lest  it  should  be  inferred 


Fact  43 

that  the  more  debt  the  more  capital,  the  greater  the 
burthens  the  greater  the  blessings  of  the  community. " 

"  But  it  interests  the  public  councils  to  estimate 
every  object  as  it  truly  is ;  to  appreciate  how  far  the 
good  in  any  measure  is  compensated  by  the  ill,  or  the 
ill  by  the  good;  either  of  them  is  seldom  unmixed." 
"  Neither  will  it  follow  that  an  accumulation  of  debt  is 
desirable,  because  a  certain  degree  of  it  operates  as 
capital.  There  may  be  a  plethora  in  the  political,  as 
in  the  natural  body ;  there  may  be  a  state  of  things  in 
which  any  such  artificial  capital  is  unnecessary.  The 
debt,  too,  may  be  swelled  to  such  a  size  as  that  the 
greatest  part  of  it  may  cease  to  be  useful  as  a  capital, 
serving  only  to  pamper  the  dissipation  of  idle  and  dis 
solute  individuals ;  as  that  the  sums  required  to  pay 
the  interest  upon  it  may  become  oppressive,  and  be 
yond  the  means  which  a  Government  can  employ,  con 
sistently  with  its  tranquillity,  to  raise  them;  as  that 
the  resources  of  taxation,  to  face  the  debt,  may  have 
been  strained  too  far  to  admit  of  extensions  adequate 
to  exigencies  which  regard  the  public  safety." 

"Where  this  critical  point  is,  cannot  be  pro 
nounced  ;  but  it  is  impossible  to  believe  that  there  is 
not  such  a  point." 

"And  as  the  vicissitudes  of  nations  beget  a  per 
petual  tendency  to  the  accumulation  of  debt,  there 
ought  to  be  in  every  government  a  perpetual,  anxious, 
and  unceasing  effort  to  reduce  that  which  at  any  time 
exists,  as  fast  as  shall  be  practicable,  consistently  with 
integrity  and  good  faith." 

Extracts  from  a  report  of  the  Secretary  of  the 
Treasury  relative  to  additional  supplies  for  carrying 


44  Alexander  Hamilton 

on  the  Indian  war,  presented  the  i6th  of  March, 
1792. 

"  The  result  of  mature  reflection  is,  in  the  mind  of 
the  Secretary,  a  strong  conviction  that  the  last  of  the 
three  expedients  which  have  been  mentioned  (that 
was  the  raising  of  the  sum  required  by  taxes)  is  to  be 
preferred  to  either  of  the  other  two." 

"  Nothing  can  more  interest  the  national  credit  and 
prosperity  than  a  constant  and  systematic  attention 
to  husband  all  the  means  previously  possessed  for  extin 
guishing  the  present  debt,  and  to  avoid,  as  muuh  as  pos 
sible,  the  incurring  any  new  debt." 

"  Necessity  alone,  therefore,  can  justify  the  applica 
tion  of  any  of  the  public  property,  other  than  the 
annual  revenues,  to  the  current  service,  or  to  the 
temporary  and  casual  exigencies  of  the  country,  or 
the  contracting  of  an  additional  debt,  by  loans,  to 
provide  for  those  exigencies." 

"Great  emergencies  might  exist  in  which  loans 
would  be  indispensable.  But  the  occasions  which 
will  justify  them  must  be  truly  of  that  description." 
"  The  present  is  not  of  such  a  nature.  The  sum  to  be 
provided  is  not  of  magnitude  enough  to  furnish  the 
plea  of  necessity."  "Taxes  are  never  welcome  to  a 
community.  They  seldom  fail  to  excite  uneasy  sen 
sations  more  or  less  extensive;  hence  a  too  strong 
propensity  in  the  Government  of  nations  to  antici 
pate  and  mortgage  the  resources  of  posterity, 
rather  than  encounter  the  inconveniences  of  a  present 
increase  of  taxes." 

"  But  this  policy  when  not  dictated  by  very  peculiar 
circumstances,  is  of  the  worst  kind.  Its  obvious  tend- 


Fact  45 

ency  is,  by  enhancing  the  permanent  burthens  of 
the  people,  to  produce  lasting  distress,  and  its  natural 
issue  is  in  national  bankruptcy." 

"  It  will  be  happy  if  the  councils  of  this  country, 
sanctioned  by  the  voice  of  an  enlightened  com 
munity,  shall  be  able  to  pursue  a  different  course." 

Here  is  example  added  to  precept.  In  pursuit  of  a 
doctrine,  the  opposite  of  that  which  is  charged  upon 
him,  the  Secretary  did  not  scruple  to  hazard  the 
popularity  of  his  administration  with  a  class  of  citi 
zens  who,  as  a  class,  have  been  among  the  firmest 
friends  of  the  Government,  and  the  warmest  ap 
provers  of  the  measures  which  have  restored  public 
credit.  The  circumstances,  indeed,  have  been  a 
weapon  dexterously  wielded  against  him  by  his  ene 
mies,  who,  in  consequence  of  the  increase  of  duties 
proposed,  have  represented  him  as  the  oppressor  of 
trade.  A  certain  description  of  men  are  for  getting 
out  of  debt,  yet  are  against  all  taxes  for  raising  money 
to  pay  it  off;  they  are  among  the  foremost  for  car 
rying  on  war,  and  yet  will  have  neither  loans  nor 
taxes.  They  are  alike  opposed  to  what  creates  debt 
and  to  what  avoids  it. 

In  the  first  case  their  meaning  is  not  difficult  to  be 
divined;  in  the  last  it  would  puzzle  any  man,  not  en 
dowed  with  the  gift  of  second  sight,  to  find  it  out, 
unless  it  be  to  quarrel  with  and  pull  down  every  man 
who  will  not  consent  to  walk  in  their  leading-strings ; 
or  to  throw  all  things  into  confusion. 

FACT. 


46  Alexander  Hamilton 

PUBLIC    DEBT 

(Communicated  to  the  House  of  Representatives,  December  3,  1792.) 
TREASURY  DEPARTMENT,  November  30,  1792. 

In  obedience  to  two  resolutions  of  the  House  of 
Representatives:  one  of  the  2ist  instant,  directing 
the  Secretary  of  the  Treasury  to  report  a  plan  for  the 
redemption  of  so  much  of  the  public  debt  as,  by  the 
act  entitled  "  An  act  making  provision  for  the  debt  of 
the  United  States,"  the  United  States  have  reserved 
the  right  to  redeem;  the  other  of  the  22d  instant, 
directing  him  to  report  the  plan  of  a  provision  for  the 
reimbursement  of  a  loan,  made  of  the  Bank  of  the 
United  States,  pursuant  to  the  eleventh  section  of 
the  act  entitled  "  An  act  to  incorporate  the  subscrib 
ers  to  the  Bank  of  the  United  States,"  the  said  Sec 
retary  respectfully  submits  the  following  report : 

The  expediency  of  taking  measures  for  the  regular 
redemption  of  the  public  debt,  according  to  the  right 
which  has  been  reserved  to  the  Government,  being 
wisely  predetermined  by  the  resolution  of  the  House 
of  Representatives  referring  the  subject  to  the  Secre 
tary,  nothing  remains  for  him  but  to  endeavor  to 
select  and  submit  the  most  eligible  means  of  provid 
ing  for  the  execution  of  that  important  object. 

With  this  view  the  first  inquiry  which  naturally 
presents  itself  is,  whether  the  existing  revenues  are, 
or  are  not,  adequate  to  the  purpose. 

The  estimates  which  accompany  the  report  of  the 
Secretary,  of  the  i4th  instant,  will  show  that,  during 
the  continuance  of  the  present  Indian  war,  the  appro 
priations  for  interest,  and  the  demands  for  the  cur- 


Public  Debt  47 

rent  service,  are  likely  to  exhaust  the  product  of  the 
existing  revenues;  though  they  afford  a  valuable 
surplus  beyond  the  permanent  objects  of  expenditure, 
which,  it  is  hoped,  may  erelong  be  advantageously 
applied  to  accelerate  the  extinguishment  of  the  debt. 

In  the  meantime,  however,  and  until  the  restora 
tion  of  peace,  the  employment  of  that  resource  in  this 
way  must,  of  necessity,  be  suspended,  and  either  the 
business  of  redemption  must  be  deferred,  or  recourse 
must  be  had  to  other  expedients. 

But  did  no  such  temporary  necessity  for  resorting 
to  other  expedients  exist,  the  doing  of  it  would  still  be 
recommended  by  weighty  considerations.  It  would 
appear,  in  the  abstract,  advisable  to  leave  the  surplus 
of  the  present  revenues  free,  to  be  applied  to  such 
casual  exigencies  as  may,  from  time  to  time,  occur; 
to  occasional  purchases  of  the  debt,  when  not  ex 
hausted  by  such  exigencies;  to  the  payment  of  in 
terest  on  any  balances  which  may  be  found  due  to 
particular  States,  upon  the  general  settlement  of  ac 
counts  ;  and  finally  to  the  payment  of  interest  on  the 
deferred  part  of  the  debt,  when  the  period  for  such 
payment  arrives.  There  is  a  reasonable  prospect 
that,  if  not  diverted,  it  will  be  found  adequate  to  the 
two  last  important  purposes. 

Relinquishing,  then,  the  idea  of  an  immediate  ap 
plication  of  the  present  revenues  to  the  object  in  view, 
it  remains  to  examine  what  other  modes  are  in  the 
option  of  the  Legislature. 

Loans,  from  time  to  time,  equal  to  the  sums  an 
nually  redeemable,  and  bottomed  on  the  same  reve 
nues,  which  are  now  appropriated  to  pay  the  interest 


48  Alexander  Hamilton 

upon  those  sums,  offer  themselves  as  one  expedient 
which  may  be  employed  with  a  degree  of  advantage. 
As  there  is  a  probability  of  borrowing  at  a  lower  rate 
of  interest,  a  material  saving  would  result ;  and  even 
this  resource,  if  none  better  could  be  devised,  ought 
not  to  be  neglected. 

But  it  is  obvious  that  to  rely  upon  this  resource 
alone  would  be  to  do  little  towards  the  final  exonera 
tion  of  the  nation.  To  stop  at  that  point  would  con 
sequently  be  neither  provident  nor  satisfactory.  The 
interests  as  well  as  the  expectations  of  the  Union 
require  something  more  effectual. 

The  establishment  of  additional  revenues  is  the 
remaining  resource.  This,  if  the  business  is  to  be 
undertaken  in  earnest,  is  unavoidable.  And  a  full 
confidence  may  reasonably  be  entertained,  that  the 
community  will  see  with  satisfaction  the  employment 
of  those  means  which  alone  can  be  effectual  for 
accomplishing  an  end  in  itself  so  important  and  so 
much  an  object  of  general  desire.  It  cannot  fail  to 
be  universally  felt  that,  if  the  end  is  to  be  attained, 
the  necessary  means  must  be  employed. 

It  can  only  be  expected  that  care  be  taken  to 
choose  such  as  are  liable  to  fewest  objections,  and 
that,  in  the  modifications  of  the  business  in  other  re 
spects,  due  regard  be  had  to  the  present  and  pro 
gressive  circumstances  of  the  country. 

Assuming  it  as  the  basis  of  a  plan  of  redemp 
tion,  that  additional  revenues  are  to  be  provided, 
the  further  inquiry  divides  itself  into  the  following 
branches: 

i.  Shall  a  revenue  be  immediately  constituted, 


Public  Debt  49 

equal  to  the  full  sum  which  may  at  present  be  re 
deemed,  according  to  the  terms  of  the  contract  ? 

2.  Shall  a  revenue  be  constituted  from  year  to 
year,  equal  only  to  the  interest  of  the  sum  to  be  re 
deemed  in  each  year,  coupling  with  this  operation  an 
annual  loan  commensurate  with  such  sum?     Or, 

3.  Shall  a  revenue  be  constituted  each  year,  so 
much  exceeding  the  interest  of  the  sum  to  be  re 
deemed,  as  to  be  sufficient,  within  a  short  definite 
term  of  time,  to  discharge  the  principal  itself;  cou 
pling  with  this  operation  also  an  annual  loan  equal  to 
the  sum  to  be  annually  redeemed,  and  appropriating 
the  revenue  created  to  its  discharge,  within  the  term 
which  shall  have  been  predetermined? 

The  first  plan,  besides  being  completely  effectual, 
would  be  eventually  most  economical ;  but  consider 
ing  to  what  a  magnitude  the  revenues  of  the  United 
States  have  grown  in  a  short  period,  it  is  not  easy  to 
pronounce  how  far  the  faculty  of  paying  might  not  be 
strained  by  any  sudden  considerable  augmentation, 
wheresoever  immediately  placed;  while  the  rapid 
progress  of  the  country  in  population  and  resource 
seems  to  afford  a  moral  certainty  that  the  necessary 
augmentation  may  be  made  with  convenience,  by 
successive  steps,  within  a  moderate  term  of  time,  and 
invites  to  temporary  and  partial  suspensions,  as  capa 
ble  of  conciliating  the  reasonable  accommodation  of 
the  community  with  the  vigorous  prosecution  of  the 
main  design.  For  these  and  for  other  reasons  which 
will  readily  occur,  the  course  of  providing  imme 
diately  the  entire  sum  to  be  redeemed  is  conceived 
not  to  be  the  most  eligible. 


VOL.  HI.  — 4. 


50  Alexander  Hamilton 

The  second  plan,  though  much  more  efficacious 
than  that  of  annual  loans,  bottomed  on  the  revenues 
now  appropriated  for  the  payment  of  interest  on  the 
sums  to  be  redeemed,  does  not  appear  to  be  suffi 
ciently  efficacious.  The  schedule  A  will  show  the 
effect  of  it  to  the  ist  of  January,  1802,  when  the  de 
ferred  debt  will  become  redeemable  in  the  propor 
tions  stipulated.  Supposing  the  investment  of  the 
interest  which  is  each  year  liberated,  together  with 
that  which  has  been  and  will  be  released  by  purchases 
pursuant  to  provisions  heretofore  made,  in  the  pur 
chase  of  6  per  cent,  stock;  a  sum  of  principal,  equal 
to  2,043,837  dollars  and  7  cents,  would  be  sunk,  and  a 
clear  annuity,  equal  to  459,212  dollars  and  82  cents, 
would  be  created,  towards  further  redemptions ;  but 
the  fund  then  necessary  for  the  future  progressive 
redemption  of  the  debt,  according  to  the  right  re 
served,  would  be  1,176,616  dollars  and  44  cents,  ex 
ceeding  by  667,403  dollars  and  62  cents  the  amount 
of  the  redeeming  fund.  Something  more  effectual 
than  this  is  certainly  desirable,  and  appears  to  be 
practicable. 

The  last  of  the  three  plans  best  accords  with  the 
most  accurate  veiw  which  the  Secretary  has  been  able 
to  take  of  the  public  interest. 

In  its  application  it  is  of  material  consequence  to 
endeavor  to  accomplish  these  two  points:  ist.  The 
complete  discharge  of  the  sums  annually  redeemable 
within  the  period  prefixed,  and  the  reimbursement, 
within  the  same  period,  of  all  auxiliary  loans  which 
may  have  been  made  for  that  purpose.  2dly.  The 
constituting,  by  the  expiration  of  that  period,  a  clear 


Public  Debt  51 

annual  fund,  competent  to  the  future  redemption  of 
the  debt,  to  the  extent  of  the  right  reserved. 

The  period  to  which  it  is  conceived  the  plan  ought 
to  refer,  is  the  ist  day  of  January,  1802 ;  because  then 
the  first  payment  on  account  of  the  principal  of  the 
deferred  debt  may  rightfully  be  made. 

In  conformity  to  these  ideas,  the  following  plan  is 
most  respectfully  submitted ;  premising,  that  the  sum 
redeemable  for  the  first  year  of  the  six  per  cent,  stock, 
bearing  a  present  interest,  is  computed  at  550,000 
dollars. 

Let  an  annual  fund  be  constituted,  during  the  pre 
sent  session,  equal  to  103,199  dollars  and  6  cents,  to 
begin  to  accrue  from  the  ist  of  January,  1793.  Let 
the  sum  of  550,000  dollars  be  borrowed  upon  the 
credit  of  this  annuity,  reimbursable  within  five  years 
— that  is,  by  the  ist  of  January,  1799.  The  sum 
borrowed  to  be  applied,  on  the  ist  of  January,  1794, 
to  the  first  payment  on  account  of  the  principal  of  the 
debt. 

The  proposed  annuity  will  reimburse  the  sum  bor 
rowed,  with  interest,  by  the  ist  of  January,  1 799,  and 
will,  thenceforth,  be  free  for  any  further  application. 

The  sum  redeemable  the  second  year — that  is,  on 
the  ist  of  January,  1795,  is  computed  at  583,000 
dollars. 

Let  an  annual  fund  be  constituted,  during  the 
second  session  after  the  present,  equal  to  109,391 
dollars  and  60  cents,  to  begin  to  accrue  from  the  ist 
of  January,  1794.  Let  the  sum  of  583,000  dollars  be 
borrowed  upon  the  credit  of  this  annuity,  reimburs 
able  within  five  years — that  is,  by  ist  of  January, 


52  Alexander  Hamilton 

1800.  The  sum  borrowed  to  be  applied,  on  the  first 
of  January,  1795,  to  the  second  payment  on  account 
of  the  principal  of  the  debt. 

The  proposed  annuity  will  reimburse  the  sum  bor 
rowed,  with  interest,  by  the  ist  of  January,  1800,  and 
will  be,  thenceforth,  free  for  any  further  application. 

The  sum  redeemable  the  third  year — that  is,  on  the 
ist  of  January,  1796,  is  computed  at  617,980  dollars. 

Let  an  annual  fund  be  constituted,  during  the  third 
session  after  the  present,  equal  to  1 15,955  dollars  and 
17  cents,  to  begin  to  accrue  from  the  ist  of  January, 

1795.  Let  the  sum  of  617,980  dollars  be  borrowed 
upon  the  credit  of  this  annuity,  reimbursable  within 
five  years — that  is,  by  the  i  st  of  January,  1 80 1 .     The 
sum  borrowed  to  be  applied  on  the  ist  of  January, 

1796,  to  the  third  payment  on  account  of  the  princi 
pal  of  the  debt. 

The  proposed  annuity  will  reimburse  the  sum  bor 
rowed,  with  interest,  by  the  ist  of  January,  1801. 

The  sum  redeemable  the  fourth  year — that  is,  on 
the  ist  of  January,  1797,  is  computed  at  655,058 
dollars  and  80  cents. 

Let  an  annual  fund  be  constituted,  during  the 
fourth  session  after  the  present,  equal  to  122,912 
dollars  and  48  cents,  to  begin  to  accrue  from  the  ist 
of  January,  1796.  Let  the  sum  of  655,058  dollars 
and  80  cents  be  borrowed  upon  the  credit  of  this 
annuity,  reimbursable  within  five  years — that  is,  by 
the  ist  of  January,  1802.  The  sum  borrowed  to  be 
applied  on  the  ist  of  January,  1797,  to  the  fourth 
payment  on  account  of  the  principal  of  the  debt. 

The  proposed  annuity  will    reimburse  the   sum 


Public  Debt  53 

borrowed,  with  interest,  by  the  ist  of  January, 
1802. 

The  sum  redeemable  the  fifth  year — that  is,  on  the 
ist  of  January,  1798,  is  computed  at  694,362  dollars 
and  33  cents. 

Let  an  annual  fund  be  constituted,  during  the  fifth 
session  after  the  present,  equal  to  152,743  dollars  and 
12  cents,  to  begin  to  accrue  from  the  ist  of  January, 
1797.  Let  the  sum  of  694 , 3  6  2  dollars  and  3 3  cents  be 
borrowed  upon  the  credit  of  this  annuity,  reimburs 
able  within  four  years — that  is,  by  the  ist  of  January, 
1802.  The  sum  borrowed  to  be  applied  on  the  ist  of 
January,  1798^0  the  fifth  payment  on  account  of  the 
principal  of  the  debt. 

The  proposed  annuity  will  reimburse  the  sum  bor 
rowed,  with  interest,  by  the  ist  of  January,  1802. 

The  sum  redeemable  the  sixth  year — that  is,  on  the 
ist  of  January,  1799,  is  computed  at  736,024  dollars 
and  7  cents. 

Let  an  annual  fund  be  constituted,  during  the 
sixth  session  after  the  present,  equal  to  197,680  dol 
lars  and  20  cents,  to  begin  to  accrue  from  the  ist  of 
January,  1798.  Let  the  sum  of  736,024  dollars  and  7 
cents  be  borrowed  upon  the  credit  of  this  annuity, 
reimbursable  within  three  years — that  is,  by  the  ist 
of  January,  1802.  The  sum  borrowed  to  be  applied 
on  the  ist  of  January,  1799,  to  the  sixth  payment  on 
account  of  the  principal  of  the  debt. 

The  proposed  annuity  will  reimburse  the  sum 
borrowed,  with  interest,  by  the  ist  of  January, 
1802. 

The  sum  redeemable  the  seventh  year — that  is,  on 


54  Alexander  Hamilton 

the  ist  of  January,  1800,  is  computed  at  780,185  dol 
lars  and  52  cents. 

Let  an  annual  fund  be  constituted,  during  the  sev 
enth  session  after  the  present,  equal  to  272,848  dol 
lars  and  38  cents,  to  begin  to  accrue  from  the  ist  of 
January,  1799.  Let  the  sum  of  780,185  dollars  and 
52  cents  be  borrowed  upon  the  credit  of  this  annuity, 
reimbursable  within  two  years — that  is,  by  the  ist  of 
January,  1802.  The  sum  borrowed  to  be  applied  on 
the  ist  of  January,  1800,  to  the  seventh  payment  on 
account  of  the  principal  of  the  debt. 

The  proposed  annuity  will  reimburse  the  sum  bor 
rowed,  with  interest,  by  the  ist  of  January,  1802. 

The  sum  redeemable  the  eighth  year — that  is,  on  the 
ist  of  January,  1801,  is  computed  at  826,996  dollars 
and  65  cents. 

Let  an  annual  fund  be  constituted,  during  the 
eighth  session  after  the  present,  equal  to  423,583  dol 
lars  and  54  cents,  to  begin  to  accrue  from  the  ist  of 
January,  1800.  Let  the  sum  of  826,996  dollars  and 
65  cents  be  borrowed  upon  the  credit  of  this  annuity, 
reimbursable  within  one  year — that  is,  on  the  ist  of 
January,  1802.  The  sum  borrowed  to  be  applied  on 
the  ist  of  January,  1801,  to  the  eighth  payment  on 
account  of  the  principal  of  the  debt. 

The  proposed  annuity  will  reimburse  the  sum  bor 
rowed,  with  interest,  on  the  ist  of  January,  1802. 

The  sum  redeemable  the  ninth  year — that  is,  on 
the  ist  of  January,  1802,  is  computed  at  1,126,616 
dollars  and  44  cents. 

The  then  existing  means  for  the  discharge  of  this 
sum,  arising  from  the  operation  of  the  plan,  will  be : 


Public  Debt  55 

i  st.  The  amount  of  the  annuity  constituted  the 
third  year,  which  will  have  been  liberated  by  reim 
bursement  of  the  third  loan.  2d.  The  arrears  of 
interest  not  previously  appropriated,  and  which  are 
computed  at  200,000  dollars. 

There  will  consequently  be  a  deficiency,  this  year, 
of  810,661  dollars  and  27  cents,  which  will  require  to 
be  supplied  by  a  temporary  loan,  to  be  reimbursed 
out  of  the  surplus  of  the  fund  which,  on  the  ist  of 
January,  1802,  will  exist  for  future  redemptions,  and 
which  surplus  will  be  sufficient  to  reimburse  this 
temporary  loan  in  about  thirteen  years  and  a  half. 

It  may  be  proper  to  remark,  that  this  deficiency 
upon  one  year  is  suffered  to  exist,  to  avoid  an 
unnecessary  augmentation  of  revenue  materially 
beyond  the  sum  permanently  requisite.  No  incon 
venience  ensues,  because  this  temporary  deficiency  is 
made  up  by  the  surplus  of  the  permanent  fund  within 
the  period  mentioned.  And  that  fund,  from  the 
ist  of  January,  1802,  is  adequate  to  all  future  re 
demptions,  in  the  full  proportion  permitted  by  the 
contract. 

The  table  in  the  schedule  B,  will  show,  in  one  view, 
the  principles  and  operation  of  this  plan. 

The  schedule  C  will  exhibit  the  means  of  constitut 
ing  the  several  annuities  proposed  to  be  established. 
From  it  will  be  seen,  that  the  proposed  annuities  are 
to  be  composed,  partly  of  taxes,  to  be  successively 
laid  at  the  respective  periods  of  creating  them,  partly 
of  the  surplus  dividend  to  be  expected  on  the  stock 
belonging  to  the  Government  in  the  Bank  of  the 
United  States,  beyond  the  interest  to  be  paid  on  ac- 


56  Alexander  Hamilton 

count  of  it,  and  partly  of  the  funds  heretofore  pledged 
for  the  payment  of  interest,  which  will  have  been 
liberated  upon  so  much  of  the  debt  as  will  have  been 
extinguished. 

The  respective  amounts  of  the  taxes  to  be  severally 
laid  will  be: 

In  the  first  year   .  .  .  .  $  43,199  06 

In  the  second  year  .  .  .  109,391  60 

In  the  third  year  .  .  .  115,955  17 

In  the  fourth  year  .  .  .  102,912  48 

In  the  fifth  year  .  .  .  102,743  12 

In  the  sixth  year  ...  107,680  20 

In  the  seventh  year  .  .  .  109,649  32 


Making  together     .         .     $691,53095 

The  sum  which  will  have  been  redeemed  prior  to 
the  ist  day  of  January,  1802,  will  be  $5,443,607  37. 
The  sum  redeemable  on  the  ist  of  January,  1802,  will 
be  $1,126,616  44;  and  the  fund  which  will,  thence 
forth,  exist  for  the  purpose  of  future  redemption  (as  is 
particularly  shown  by  the  schedule  D),  will  be  $i,- 
210,744  34,  exceeding  the  sum  strictly  necessary  by 
$84,127  90 — a  fund  which,  including  the  interest, 
from  year  to  year  liberated,  will,  as  already  intimated, 
be  completely  adequate  to  the  final  redemption  of  the 
whole  amount  of  the  six  per  cent,  stock  (as  well  the 
deferred  as  that  bearing  a  present  interest),  according 
to  the  right  which  has  been  reserved  for  that  purpose. 

In  the  meantime,  a  further  impression  will  be  made 
upon  the  debt,  by  the  investment  of  the  residue  of  the 
funds  heretofore  established,  in  the  purchase  of  it; 
and  it  is  hoped,  that  the  restoration  of  peace  with  the 


Public  Debt  57 

Indians  will  enable  the  application  of  the  surplus  of 
the  existing  revenues,  together  with  the  proceeds  of 
the  ceded  lands  in  our  Western  territory,  to  the  same 
object.  These,  whenever  they  can  be  brought  into 
action,  will  be  important  aids,  materially  accelerating 
the  ultimate  redemption  of  the  entire  debt.  The  em 
ployment  of  these  resources,  when  it  can  be  done, 
by  increasing  the  interest  fund,  will  proportionably  - 
lessen  the  necessity  of  using  the  resource  of  taxation, 
for  creating  the  proposed  annuities — if  the  Govern 
ment  shall  judge  it  advisable  to  avail  itself  of  the  sub 
stitute  which  may  accrue  from  that  circumstance. 

Having  now  given  a  general  view  of  the  plan  which 
has  appeared,  upon  the  whole,  the  most  eligible,  it  is 
necessary,  in  the  next  place,  to  present  to  the  con 
sideration  of  the  House  the  requisite  funds  for  com 
mencing  the  execution  of  it.  These  will  embrace  a 
provision  for  the  first  annuity  only,  that  alone  requir 
ing,  by  the  plan,  immediate  provision.  With  regard 
to  a  provision  for  the  subsequent  annuities,  which  is 
proposed  to  be  successive,  the  Secretary  will  content 
himself  with  this  general  observation,  that  he  dis 
cerns  no  intrinsic  difficulty  in  making  provision  for 
them,  as  fast  as  shall  be  necessary,  with  due  con 
venience  to  the  people,  and  consistently  with  the  idea 
of  abstaining  from  taxing  lands  and  buildings  (with 
the  stock  and  implements  of  farms),  reserving  them 
as  a  resource  for  those  great  emergencies  which  call 
for  a  full  exertion  of  all  the  contributive  faculties  of  a 
country. 

The  following  means,  for  constituting  the  first  an 
nuity,  are  respectfully  submitted,  viz. : 


58  Alexander  Hamilton 

Annual  surplus  of  the  dividend  on  the  stock  of  Gov 
ernment  in  the  Bank  of  the  United  States,  beyond  the 
interest  to  be  paid  out  of  the  said  dividend,  estimated 
at  $60,000. 

Tax  on  horses,  kept  or  used  for  the  purpose  of  rid 
ing,  or  of  drawing  any  coach,  chariot,  phaeton,  chaise, 
chair,  sulky,  or  other  carriage  for  conveyance  of  per 
sons,  excepting  and  exempting  all  horses  which  are 
usually  and  chiefly  employed  for  the  purposes  of  hus 
bandry,  or  in  drawing  wagons,  wains,  drays,  carts,  or 
other  carriages,  for  the  transportation  of  produce, 
goods,  merchandise,  and  commodities,  or  in  carrying 
burthens  in  the  course  of  the  trade  or  occupation  of 
the  persons  to  whom  they  respectively  belong,  and 
the  horses  of  persons  in  the  military  service  of  the 
United  States,  viz. : 

For  every  horse,  not  above  excepted  and  exempted, 
at  the  rate  of  one  dollar  per  annum  where  only  one  is 
used  or  kept  by  the  same  person,  with  an  addition  of 
fifty  cents  per  annum  per  horse,  where  more  than  one 
and  not  more  than  two  horses  are  kept  or  used  by  the 
same  person;  with  an  addition  of  one  dollar  per 
annum  per  horse,  where  more  than  two  and  not  more 
than  four  are  kept  or  used  by  the  same  person ;  and, 
with  an  addition  of  one  dollar  and  a  half  dollar  per 
horse,  per  annum,  where  more  than  four  are  kept  and 
used  by  the  same  person.  Provided,  That  this  addi 
tion  shall  not  be  made,  in  respect  to  horses  usually 
employed  in  public  stages,  for  the  conveyance  of 
passengers. 

This  progressive  increase  of  rates  on  the  higher 
numbers  has  reference  to  the  presumption  of  greater 


Public  Debt  59 

wealth,  which  arises  from  the  possession  of  such 
higher  numbers. 

The  product  of  this  tax  will,  probably,  be  about 
equal  to  the  residue  of  the  proposed  annuity,  which  is 
$43,199  06.  How  near  the  truth  this  estimate  may 
prove,  experiment  alone  can,  in  so  untried  a  case,  de 
cide.  An  aid  to  this  fund  may  be  derived  from  the 
surplus  dividend  on  the  bank  stock,  for  the  half  year 
ending  the  last  of  December  next,  which,  it  is  pre 
sumed,  will  be  not  less  than  $20,000.  Should  a  de 
ficiency  appear,  upon  trial,  it  can  be  supplied  by  a 
future  provision. 

Proper  regulations  for  the  collection  of  this  tax  will, 
it  is  believed,  be  found  not  difficult,  if  the  tax  itself 
shall  be  deemed  eligible.  Its  simplicity  has  been  a 
considerable  recommendation  of  it.  Qualified  as  it 
is,  it  is  not  likely  to  fall  on  any  but  such  who  can 
afford  to  pay  it.  The  exemption  from  the  tax,  in 
regard  to  horses  which  are  appropriated  to  the  pur 
poses  of  husbandry,  or  of  any  trade  or  occupation, 
or  to  the  transportation  of  commodities,  seems  to 
obviate  all  reasonable  objection. 

If,  however,  there  should  appear  to  the  Legislature 
reasons  for  preferring  a  tax  on  carriages  for  pleasure, 
which,  it  may  be  observed,  will  operate  on  nearly  the 
same  description  of  persons,  the  sum  required  may, 
it  is  believed,  be  produced  from  the  following  ar 
rangements  of  rates,  viz.:  Upon  every  coach,  the 
annual  sum  of  four  dollars.  Upon  every  chariot,  the 
annual  sum  of  three  dollars.  Upon  every  other 
carriage  for  the  conveyance  of  persons,  having  four 
wheels,  the  annual  sum  of  two  dollars;  and,  upon 


60  Alexander  Hamilton 

every  chair,  sulky,  or  other  carriage  for  the  conveyance 
of  persons,  having  less  than  four  wheels,  the  annual 
sum  of  one  dollar. 

The  collection  of  this  tax  will  be  as  simple  and 
easy,  and  perhaps  more  certain,  than  that  which  has 
been  primarily  submitted. 

With  regard  to  the  second  object  referred  to  the 
Secretary,  namely,  the  plan  of  a  provision  for  the  re 
imbursement  of  the  loan  made  of  the  Bank  of  the 
United  States,  pursuant  to  the  eleventh  section  of 
the  act  by  which  it  is  incorporated,  the  following  is 
respectfully  submitted,  to  wit :  That  power  be  given 
by  law  to  borrow  the  sum  due  to  be  applied  to  that 
reimbursement :  and  that  so  much  of  the  dividend  on 
the  stock  of  the  Government,  in  the  bank,  as  may  be 
necessary,  be  appropriated  for  paying  the  interest  of 
the  sum  to  be  borrowed. 

From  this  operation  it  is  obvious  that  a  saving  to 
the  Government  will  result,  equal  to  the  difference 
between  the  interest  which  will  be  payable  on  the 
new  loan,  and  that  which  is  payable  on  the  sum  now 
due  to  the  bank.  If  the  proposed  loan  can  be  ef 
fected  at  the  rate  of  those  last  made  in  Holland,  the 
net  saving  to  the  Government  may  be  computed  at 
the  annual  sum  of  $35,000;  which  saving,  whatever 
it  may  be,  is  contemplated  as  part  of  the  means  for 
constituting  the  proposed  annuities. 

The  benefit  of  this  arrangement  will  be  accelerated 
if  provision  be  made  for  the  application  of  the  pro 
ceeds  of  any  loans,  heretofore  obtained,  to  the  pay 
ment  suggested  on  the  condition  of  replacing  the 
sums,  which  may  be  so  applied,  out  of  the  proceeds  of 


Public  Debt  61 

the  loan  or  loans  which  shall  be  made  pursuant  to  the 
power  above  proposed  to  be  given. 

It  will  also  conduce  to  the  general  end  in  view  if  the 
Legislature  shall  think  proper  to  authorize  the  invest 
ment  of  the  funds,  destined  for  purchases  of  the  debt, 
in  purchases  of  six-per-cent.  stock,  at  the  market 
price,  though  above  par.  The  comparative  prices  of 
the  several  kinds  of  stock  have  been,  and  frequently 
may  be,  such  as  to  render  it  more  profitable  to  make 
investments  in  the  six  per  cents,  than  in  any  other 
species  of  stock. 

All  which  is  humbly  submitted. 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 


LOANS 

IN  THE  HOUSE  OP  REPRESENTATIVES 
OF  THE  UNITED  STATES, 

WEDNESDAY,  January  23,  1793. 

Resolved,  That  the  President  of  the  United  States 
be  requested  to  cause  to  be  laid  before  this  House 
copies  of  the  authorities  under  which  loans  have 
been  negotiated,  pursuant  to  the  acts  of  the  4th  and 
1 2th  of  August,  1790,  together  with  copies  of  the  au 
thorities  directing  the  application  of  the  moneys 
borrowed. 

Resolved,  That  the  President  of  the  United  States 
be  requested  to  cause  this  House  to  be  furnished  with 
the  names  of  the  persons  by  whom  and  to  whom  the 
respective  payments  of  the  French  debt  have  been 
made  in  France,  pursuant  to  the  act  for  that  purpose, 


62  Alexander  Hamilton 

specifying  the  dates  of  the  respective  drafts  upon  the 
commissioners  in  Holland,  and  the  dates  of  the  re 
spective  payments  of  the  debt.  A  similar  state 
ment  is  requested  respecting  the  debts  to  Spain  and 
Holland. 

Resolved,  That  the  Secretary  of  the  Treasury  be 
directed  to  lay  before  this  House  an  account  ex 
hibiting  half  monthly  the  balances  between  the 
United  States  and  the  Bank  of  the  United  States,  in 
cluding  the  several  branch  banks,  from  the  com 
mencement  of  those  institutions  to  the  end  of  the  year 
1792. 

Resolved,  That  the  Secretary  of  the  Treasury  be 
directed  to  lay  before  this  House  an  account  of  all 
moneys  which  may  have  come  into  the  sinking  fund, 
from  the  commencement  of  that  institution  to  the 
present  time,  specifying  the  particular  fund  from 
which  they  have  accrued,  and  exhibiting,  half  yearly, 
the  sums  uninvested,  and  where  deposited. 

Resolved,  That  the  Secretary  of  the  Treasury  be 
directed  to  report  to  this  House  the  balance  of  all 
unapplied  revenues  at  the  end  of  the  year  1792, 
specifying  whether  in  money  or  bonds,  and  noting 
where  the  money  is  deposited:  That  he  also  make 
report  of  all  unapplied  moneys  which  may  have  been 
obtained  by  the  several  loans  authorized  by  law,  and 
where  such  moneys  are  now  deposited.1 

1  These  resolutions,  following  certain  others  offered  a  month  before, 
were  introduced  to  discredit  and  break  down  Hamilton.  They  were 
instigated  by  Jefferson,  with  the  advice  and  assistance  of  Madison,  and 
were  brought  forward  in  the  House  by  their  tool,  Giles.  This  and  the 
following  reports,  which  answered  everything  completely,  were  pre 
pared  with  incredible  rapidity,  and  effectually  crushed  the  assailants. 


Loans  63 

REPORT  OP  THE  SECRETARY  OF  THE  TREASURY    IN    PURSUANCE   OP 
THE  FOREGOING  RESOLUTIONS 

TREASURY  DEPARTMENT,  February  4,  1793. 

SIR: 

I  have  lost  no  time  in  preparing,  as  far  as  has  been 
practicable,  consistently  with  the  course  of  facts,  the 
several  statements  required  by  the  resolutions  of  the 
House  of  Representatives  of  the  23d  of  last  month; 
and  I  have  concluded  to  add  to  them  such  further 
statements  as  appeared  to  me  necessary  to  convey 
fully  the  information  which  is  understood  to  be  the 
object  of  those  resolutions.  It  was  my  first  intention 
to  submit  these  statements  collectively,  with  such  ex 
planatory  remarks  as  the  occasion  might  demand; 
but  finding,  on  experiment,  from  the  extent  and 
variety  of  the  matter  involved  in  the  resolutions,  that 
more  time  will  be  requisite  for  a  full  development  of 
it  than  I  had  anticipated,  considerations  of  weight 
in  my  mind  have  determined  me  to  present  the  dif 
ferent  parts  of  the  subject  successively.  Among 
other  advantages,  incident  to  this  course  of  proceed 
ing,  will  be  that  of  having  it  in  my  power  to  give  a 
more  accurate  and  mature  view  of  the  entire  subject, 
without  too  great  a  dereliction  of  the  current  business 
of  the  Department.  In  executing  the  task  I  propose 
to  myself,  I  shall  rely  on  the  indulgence  of  the  House 
to  a  latitude  of  observation  corresponding  with  the 
peculiar  circumstances  of  the  case. 

The  resolutions  to  which  I  am  to  answer  were  not 
moved  without  a  pretty  copious  display  of  the  reasons 
on  which  they  were  founded.  These  reasons  are  be 
fore  the  public,  through  the  channel  of  the  press. 
They  are  of  a  nature  to  excite  attention;  to  beget 


64  Alexander  Hamilton 

alarm ;  to  inspire  doubts.  Deductions  of  a  very  ex 
traordinary  complexion  may,  without  forcing  the 
sense,  be  drawn  from  them. 

I  feel  it  incumbent  upon  me  to  meet  the  sugges 
tions  which  have  been  thrown  out,  with  decision  and 
explicitness.  And  while  I  hope  I  shall  let  fall  no 
thing  inconsistent  with  that  cordial  and  unqualified 
respect  which  I  feel  for  the  House  of  Representatives ; 
while  I  acquiesce  in  the  sufficiency  of  the  motives 
that  induced  on  their  part  the  giving  a  prompt  and 
free  course  to  the  investigation  proposed,  I  cannot 
but  resolve  to  treat  the  subject  with  a  freedom  which 
is  due  to  truth,  and  to  the  consciousness  of  a  pure  zeal 
for  the  public  interest. 

I  begin  with  the  last  of  the  four  resolutions,  be 
cause  it  is  that  which  seeks  information  relating  to 
the  most  delicate  and  important  of  the  suggestions 
that  have  been  hazarded. 

Here,  however,  I  have  to  regret  the  utter  im 
possibility  of  a  strict  compliance  with  the  terms 
of  the  resolution.  The  practicability  of  such  a 
compliance  would  suppose  nothing  less  than  that, 
since  the  last  day  of  December,  1792,  all  the  ac 
counts  of  all  the  collectors  of  the  customs  and 
other  officers  of  the  revenue  throughout  the  whole 
extent  of  the  United  States  could  be  digested, 
made  up,  and  forwarded  to  the  Treasury ;  could  be 
examined  there,  settled,  and  carried  into  the  public 
books,  under  their  proper  heads;  in  a  word,  that 
all  the  accounts  of  the  revenues,  receipts,  and 
expenditures  of  this  extensive  country  would  have 
passed  through  a  complete  exhibition,  examination, 


Loans  65 

and  adjustment  within  the  short  period  of  twenty- 
three  days. 

It  was  made  (as  I  presume  from  the  result)  satis 
factorily  to  appear  to  a  committee  of  the  House  of 
Representatives,  who  were  charged  during  the  last 
session  with  framing  a  direction  to  the  Treasury  for 
bringing  forward  an  annual  account  of  receipts  and 
expenditures,  that  the  course  of  public  business 
would  not  admit  of  the  rendering  of  such  an  account 
in  less  than  nine  months  after  the  expiration  of  each 
year;  in  conformity  to  which  idea  their  report  was 
formed  and  an  order  of  the  House  established. 

I  need  do  nothing  more  to  evince  the  impractica 
bility  of  an  exact  compliance  with  the  resolution  in 
question,  than  to  observe  that  it  is  even  more  com 
prehensive  (though  with  less  detail)  than  the  order 
of  the  House  to  which  I  have  alluded. 

To  evince,  nevertheless,  my  readiness  to  do  all  in 
my  power  toward  fulfilling  the  views  of  the  House 
and  throwing  light  upon  the  transactions  of  the  De 
partment,  I  shall  now  offer  to  their  inspection  sundry 
statements,1  marked  A,  AB,  B,  C,  D,  E,  F,  which 
contain,  as  far  as  is  at  this  time  possible,  the  informa 
tion  desired,  and  with  sufficient  certainty  and  ac 
curacy  to  afford  satisfaction  on  the  points  of  inquiry 
involved  in  the  resolution. 

The  statement  A  shows  in  abstract  the  whole  of  the 
receipts  into,  and  expenditures  from,  the  Treasury, 
commencing  with  the  first  of  January,  and  ending 
with  the  last  of  December,  1792,  corresponding  with 

1  For  these  statements  in  full,  see  State  Papers,  "Finance,"  vol.  i.,  p. 
1 88,  et  seq. 

VOL.  III. — 5. 


66  Alexander  Hamilton 

the  accounts  of  the  Treasurer.  These  accounts  have 
been  regularly  settled  up  to  the  end  of  September, 
and  copies  have  been  laid  before  the  two  Houses  of 
Congress.  The  account  for  the  quarter  terminating 
with  the  year  has  not  yet  passed  through  the  forms 
of  settlement,  but  is  under  examination,  and  will,  no 
doubt,  be  settled  as  it  stands ;  the  manner  of  conduct 
ing  the  business,  and  the  usual  care  and  accuracy  of 
the  officer  concerned,  leaving  very  little  room  to  appre 
hend  misstatement  or  error.  A  copy  of  this  account 
is  herewith  submitted,  in  the  schedule  marked  C. 

This  statement  takes  up  the  balance  of  the  general 
account  of  receipts  and  expenditures  to  the  end  of  the 
year  1791,  as  reported  to  the  House  of  Representa 
tives  within  the  first  week  of  the  present  session,  and 
continuing  it  down  to  the  end  of  1792,  shows  a  bal 
ance  then  in  the  Treasury  of  seven  hundred  and 
eighty-three  thousand  four  hundred  and  forty-four 
dollars  and  fifty-one  cents. 

The  statement  B  is  a  more  comprehensive  docu 
ment.  It  is  a  general  account  of  INCOME  and  ex 
penditure.  It  shows  not  merely  the  actual  receipts 
of  money  into  the  Treasury,  but  the  whole  amount  of 
the  national  revenues,  from  the  commencement  of 
the  present  Government,  to  the  conclusion  of  the 
year  1792,  as  well  outstanding  as  collected;  the  pro 
ceeds  of  domestic  loans;  the  whole  amount  of  the 
sums  which  have  been  drawn  into  the  United  States, 
on  account  of  the  foreign  loans ;  and  all  other  moneys, 
from  whatever  source,  which  have  accrued  within  the 
period  embraced  by  the  statement. 

These  items  form  the  debit  side  of  the  account, 


Loans  67 

amounting  to  seventeen  millions  eight  hundred  and 
seventy-nine  thousand  eight  hundred  and  twenty- 
five  dollars  and  thirty-three  cents. 

The  credit  side  consists  of  two  items :  i .  The  whole 
amount  of  the  actual  expenditures  to  the  end  of  the 
year  1 791,  as  stated  in  the  general  account  of  receipts 
and  expenditures  before  referred  to.  2.  The  whole 
amount  of  the  actual  expenditures  during  the  year 
1792,  as  specified  generally  in  the  statement  A,  and 
particularly  in  the  several  quarterly  accounts  of  the 
Treasurer,  amounting  to  twelve  millions  seven  hun 
dred  and  sixty-five  thousand  one  hundred  and 
twenty-eight  dollars  and  eighty-three  cents. 

The  balance  of  this  account  of  income  and  expend 
iture  is  consequently  five  millions  one  hundred  and 
fourteen  thousand  six  hundred  and  ninety-six  dollars 
and  fifty  cents ;  which  corresponds  with  the  excess  of 
the  public  income  (including  the  proceeds  of  loans, 
foreign  and  domestic)  beyond  the  actual  expenditure, 
or,  more  properly  speaking,  disbursement,  to  the  end 
of  the  year  1792.  This  of  course  is  exclusive  of  those 
parts  of  the  proceeds  of  foreign  loans  which  have  been 
left  in  Europe,  to  be  applied  there ;  the  amount,  ap 
plication,  and  balance  of  which  are  exhibited,  as  far 
as  they  are  yet  known  at  the  Treasury,  in  the  state 
ment  No.  i,  of  my  late  report  on  foreign  loans. 

This  balance,  as  noted  in  the  statement  B,  is  com-  • 
posed  of  the  following  particulars : 

1.  Cash  in  the  Treasury,  per  statement  A  .      $783,444  51 

2.  Cash  in  the  Bank  of  the  United  States, 

and  the  offices  of  discount  and  de 
posit  of  New  York  and   Baltimore, 


68  Alexander  Hamilton 

not  yet  passed  to  the  account  of  the 

Treasurer,  per  statement  AB     .         .        605,883  08 

3.  Proceeds  of  Amsterdam  bills  remain 

ing  in  deposit  in  the  Bank  of  North 
America,  including  the  sum  of  one 
hundred  and  fifty-six  thousand  five 
hundred  and  ninety-five  dollars  and 
fifty-six  cents,  advanced  by  the  bank, 
without  interest,  which  is  credited  in 
the  general  account  of  receipts  and 
expenditures,  statement  A  .  .  177,998  80 

4.  Proceeds  of  Amsterdam  bills  sold,  but 

not  yet  received          .         .         .         .        614,593  02 

5.  Cash  in  hands  of  collectors  of  customs, 

per  abstract  D        .         .         .         .  151,851  25 

6.  Bonds  unpaid  at  the  end  of  the  year 

one  thousand  seven  hundred  and 
ninety-two,  on  account  of  the  duties 
on  imports  and  tonnage,  and  falling 
due  between  that  time  and  May,  one 
thousand  seven  hundred  and  ninety- 
four,  per  abstract  E  -- ;  .  .  2,442,069  15 

7.  Uncollected  residue  of  duties  on  spirits 

distilled  within  the  United  States,  per 

abstract  F 341,057  19 


Making,  together          .         .  $5,116,897  oo 

This  aggregate  somewhat  exceeds  the  balance  of 
the  account,  but  in  a  case  where  estimates  must 
necessarily  supply  the  deficiency  of  ascertained  re 
sults,  differences  of  this  nature  are  of  course.  It 
is  at  the  same  time  satisfactory  to  observe  that  the 
estimates  which  have  been  heretofore  communicated 


Loans  69 

are  proved,  by  the  official  documents  already  re 
ceived,  to  have  been  essentially  correct. 

It  will  no  doubt  readily  occur  to  the  House,  that  a 
very  small  part  of  the  excess  which  has  been  stated  is 
a  real  surplus  of  income.  There  remain  to  be  satis 
fied  numerous  objects  of  expenditure,  charged  upon 
the  fund  by  the  appropriations  which  have  been 
made,  that  cannot  fail  ultimately  to  exhaust  it, 
probably  within  four  or  five  hundred  thousand  dol 
lars,  which  will  be  embraced  in  the  appropriations  for 
the  service  of  the  year  one  thousand  seven  hundred 
and  ninety- three.  A  further  explanation  on  this 
point  is  reserved  for  future  communication. 

A  due  comprehension  of  the  statements  now  pre 
sented  must  obviate  every  idea  of  a  balance  unac 
counted  for,  in  whatever  sense  the  allegation  may 
have  been  intended  to  be  made. 

If  there  was  before  any  obscurity  on  the  subject,  it 
was  certainly  not  the  fault  of  this  Department.  Till 
the  last  resolutions,  no  call  has  been  made  upon  it 
which  rendered  it  proper  to  exhibit  a  general  view  of 
the  public  moneys  and  funds,  or  to  show  the  amount 
and  situation  of  such  as  were  unapplied.  Particular 
calls  for  particular  objects  were  made,  which,  as  I 
conceive,  were  complied  with;  but  they  were  not 
comprehensive  enough  to  embrace  a  disclosure  of 
that  nature. 

It  could  not  therefore  with  propriety  have  been 
alleged  that  there  was  a  balance  unaccounted  for ;  to 
infer  it  from  documents  which  contained  only  a  part 
of  the  necessary  information  was  not  justifiable. 
Nor  could  it  otherwise  happen,  than  that  conclusions 


7°  Alexander  Hamilton 

wholly  erroneous  would  be  the  consequences  of  tak 
ing  such  imperfect  data  for  guides. 

It  may  be  of  use,  by  way  of  elucidation,  to  point 
out  some  of  the  most  palpable  features  of  the  error 
which  has  been  entertained. 

The  following  items  are  stated  as  the  basis  of  the 
supposed  deficiency: 

Residue  of  the  proceeds  of  the  foreign  bills 
supposed  to  be  unapplied  (after  deduct 
ing  the  sums  furnished  for  St.  Domingo, 
and  the  amount  of  the  debt  to  the 
foreign  officers)  .  .  /»  .  .  $1,668,190 

Surplus  of  sinking  fund,  meaning,  I  presume, 
that  part  of  the  surplus  of  the  revenue  to 
the  end  of  the  year  1790,  which  had  not 
been  applied  in  purchases  .  .  .  •  400,000 

Surplus  of  revenue  of  the  year  1792,  as  re 
ported  .......  277,385 

$2,345,575 
Deduct,  in  bank,   meaning,   I  presume,  the 

balance  of  the  Treasurer's  cash  account  .        790,642 


Balance,  not  accounted  for        .  $1,554,933 

It  appears,  in  the  first  place,  to  have  been  over 
looked  that,  in  statement  No.  3  of  my  late  report 
concerning  foreign  loans,  mention  is  made  that  on  the 
3d  of  January  there  remained  to  be  received  of  the 
proceeds  of  the  foreign  bills  six  hundred  and  thirty- 
two  thousand  one  hundred  and  thirty- two  dollars  and 
two  cents ;  consequently,  that  sum  could  not  be  con 
sidered  as  in  the  Treasury,  and  ought  to  be  deducted 
from  the  supposed  deficiency. 


Loans  71 

Among  the  official  papers,  which  it  is  intimated 
were  consulted,  was  an  original  account,  rendered  by 
the  Bank  of  the  United  States,  of  the  sales  of  Amster 
dam  bills,  showing  a  sum  of  six  hundred  and  five  thou 
sand  eight  hundred  and  eighty-three  dollars  and  eight 
cents,  as  having  been  received  by  the  bank  and  two 
of  its  offices  of  discount  and  deposit,  for  the  proceeds 
of  those  bills.  Had  the  document  been  understood, 
it  would  have  been  known  that  this  sum  was  in  bank 
over  and  above  the  balance  of  the  Treasurer's  cash  ac 
count  ;  and  this  also  would  have  served  to  account  for 
a  large  part  of  the  supposed  deficiency — namely,  six 
hundred  and  five  thousand  eight  hundred  and  eighty- 
three  dollars  and  eight  cents.  The  course  of  this 
transaction  will  be  hereafter  explained. 

But,  among  the  misconceptions  which  have  ob 
tained,  what  relates  to  the  surplus  of  revenue  of  the 
year  1792,  is  not  the  least  striking.  The  laws  inform 
(and  consequently  no  information  on  that  point  from 
this  Department  could  have  been  necessary)  that 
credits  are  allowed  upon  the  duties  on  imports,  of 
four,  six,  nine,  twelve  months,  and,  in  some  cases,  of 
two  years.  Reason  dictates,  that  a  surplus,  in  such 
case,  must  be  considered  as  postponed  in  the  collec 
tion  or  receipt,  till  all  appropriations  upon  the  fund 
have  been  first  satisfied.  The  account  of  receipts 
and  expenditures  to  the  end  of  1791,  in  possession  of 
the  House,  shows  that,  at  that  time,  no  less  a  sum 
than  one  million  eight  hundred  and  twenty-eight 
thousand  two  hundred  and  eighty-nine  dollars  and 
twenty-eight  cents  of  the  antecedent  duties  were 
outstanding  in  bonds.  How,  then,  could  it  have 


72  Alexander  Hamilton 

happened  that  the  surplus  of  1792  was  sought  for  in 
the  Treasury  at  the  very  instant  of  the  expiration  of  the 
year?  I  forbear  to  attempt  to  trace  the  source  of  a 
mistake  so  extraordinary! 

Let  me,  however,  add,  that,  of  the  surplus  in  ques 
tion,  one  hundred  and  seventy- two  thousand  five 
hundred  and  eighty-four  dollars  and  eighty-two  cents 
are  not  payable  till  April  and  May,  1794,  as  will  be 
seen  by  the  abstract  E. 

Thus  I  have  not  only  furnished  a  just  and  affirm 
ative  view  of  the  real  situation  of  the  public  account, 
but  have  likewise  shown,  I  trust  in  a  conspicuous 
manner,  fallacies  enough  in  the  statement,  from 
which  the  inference  of  an  unaccounted-for  balance  is 
drawn,  to  evince  that  it  is  one  tissue  of  error.  In  this 
I  might  have  gone  still  further,  there  being  scarcely  a 
step  of  the  whole  process  which  is  not  liable  to  the 
imputation  of  misapprehension.  But  I  wish  not  un 
necessarily  to  weary  the  patience  of  the  House. 

Another  circumstance,  to  which  importance  has 
been  given,  and  which  was  noticed  in  connection  with 
the  suggestion  last  discussed,  is  a  disagreement  be 
tween  a  memorandum  in  the  Treasurer's  bank-book, 
and  the  statement  reported  by  me  of  the  amount  of 
bills  drawn  at  the  Treasury  upon  the  foreign  fund. 
A  disagreement  no  doubt  exists,  and  to  the  extent  of 
five  millions  seven  hundred  and  sixty  thousand  one 
hundred  and  thirty-eight  florins  or  guilders. 

But  the  following  circumstances  contain  the  solu 
tion  of  this  disquieting  appearance. 

There  will  be  found  in  the  statement  A  two  several 
credits,  each  for  two  millions  of  dollars,  as  for  mon- 


Loans  73 

eys  received  into  the  Treasury,  with  corresponding 
debits  of  equal  sums,  as  for  moneys  paid  out  of  the 
Treasury. 

But  neither  the  one  nor  the  other  did  in  reality  take 
place.  The  whole  is  a  mere  operation,  to  accomplish 
the  purposes  of  the  eleventh  section  of  the  "  act  to  in 
corporate  the  subscribers  to  the  Bank  of  the  United 
States,"  without  an  inconvenient  and  unnecessary 
displacement  of  funds. 

That  section  authorizes  a  subscription  to  the  stock 
of  the  bank,  on  account  of  the  Government,  not  ex 
ceeding  in  amount  two  millions  of  dollars,  and  pro 
vides  for  the  payment  of  it  out  of  the  moneys  which 
should  be  borrowed  by  virtue  of  either  of  the  acts  of 
the  4th  and  i2th  of  August,  1790;  the  first  making 
provision  for  the  public  debt,  the  last  for  reducing  it ; 
enjoining,  at  the  same  time,  that  a  loan  should  be 
made  of  the  bank  to  an  equal  amount,  to  replace  the 
moneys  which  were  to  be  applied  to  the  payment  of 
the  subscription. 

It  is  evident  that  nothing  could  have  been  more 
useless  (at  the  same  time  that  it  would  have  been  at 
tended  with  obvious  disadvantages  to  the  Govern 
ment),  than  actually  to  draw  from  Europe,  out  of  the 
moneys  borrowed  there,  the  sum  necessary  for  the 
payment  of  the  subscription  to  the  bank,  and  again 
to  remit,  out  of  the  loan  which  was  to  be  obtained  of 
the  bank,  a  sufficient  sum  to  replace  such  moneys,  or 
such  part  of  them  as  may  have  been  destined  for  the 
foreign  object.  Loss  upon  exchange,  in  consequence 
of  overstocking  the  market  with  bills ;  loss  in  interest, 
by  the  delays  incident  to  the  operation;  and  which 


74  Alexander  Hamilton 

would  necessarily  have  suspended  the  useful  employ 
ment  of  the  funds  for  a  considerable  time :  these  are 
some  of  the  disadvantages  to  the  Government.  To 
the  bank  alone  could  any  benefit  have  accrued ;  which 
would  have  been  in  proportion  to  the  delay  in  restor 
ing  or  applying  the  fund  to  its  primitive  destination. 
Such  an  operation,  therefore,  could  only  have  been 
justified  by  an  indisposition  on  the  part  of  the  bank 
to  facilitate  the  principal  object,  without  the  inter 
vention  of  actual  payment. 

But  no  such  disposition  existed.  On  this,  as  on 
every  other  occasion,  a  temper  liberal  toward  the 
Government  has  characterized  the  conduct  of  the 
directors  of  that  institution. 

It  was  accordingly  proposed  by  me,  and  agreed  to 
by  them,  that  the  object  to  be  accomplished  should 
be  carried  into  effect  by  a  merely  formal  arrange 
ment.  In  this,  however,  it  was  necessary  to  consult 
the  injunctions  of  law,  and  the  principles  of  the  con 
stitution  of  the  Treasury  Department. 

These  points  then  were  to  be  effected:  a  payment 
of  the  subscription  money,  to  vest  the  Government 
with  the  property  of  the  stock;  possession  of  the 
means  of  paying  it,  which  were  to  be  derived  from 
the  foreign  fund,  and  of  course  were  first  to  be  in  the 
Treasury  before  payment  could  be  made ;  the  replac 
ing  what  should  be  taken  from  that  fund  by  a  loan  of 
the  bank. 

The  following  plan  for  these  purposes  was  devised 
and  executed  by  previous  concert : 

The  Treasurer  drew  bills  upon  our  commissioners 
in  Amsterdam  for  the  sums  requisite  to  complete  the 


Loans  75 

payment  on  account  of  the  subscription.  These  bills 
were  purchased  by  the  bank,  and  warrants  in  favor  of 
the  Treasurer  upon  the  bank  served,  to  place  the  pro 
ceeds  in  the  Treasury.  Warrants  afterward  issued 
upon  the  Treasurer,  in  favor  of  the  bank,  for  the 
amount  of  the  subscription  money,  which  was  re 
ceipted  for  on  the  part  of  the  bank  as  paid.  Other 
warrants  then  issued  in  favor  of  the  Treasurer  upon 
the  bank,  for  equal  sums,  as  upon  account  of  a  loan  to 
the  Government,  which  warrants  were  satisfied  by  a 
re-delivery  to  the  Treasurer  of  the  bills  that  had  been 
drawn  upon  the  commissioners.  In  the  last  place, 
warrants  were  drawn  upon  the  Treasurer  to  replace 
the  moneys  supposed  by  the  arrangement  to  be  drawn 
from  the  foreign  fund,  which  perfected  the  operation. 
But,  from  the  detail  which  has  been  given,  it  will  be 
seen  that,  in  fact,  no  moneys  were  either  withdrawn 
from,  or  returned  to,  that  fund.  The  bills  were  can 
celled,  annexed  to  the  warrants,  and  are  lodged  in  the 
Treasury  as  vouchers  of  the  transaction. 

These  bills  were  for  two  separate  sums,  each  two 
millions  four  hundred  and  seventy-five  thousand 
guilders,  equal  to  a  million  of  dollars;  the  payment 
having  been  divided  into  two  parts,  upon  certain 
equitable  considerations,  relative  to  the  dividend  of 
the  first  half  year. 

This  transaction  explains  four  millions  nine  hund 
red  and  fifty  thousand  guilders  of  the  sum  which 
forms  the  disagreement  between  the  memorandum 
in  the  Treasurer's  bank-book  and  the  statement  re 
ported  by  me. 

The  residue  is  thus  explained:    The  sum  of  one 


76  Alexander  Hamilton 

million  two  hundred  and  thirty-seven  thousand  five 
hundred  guilders,  directed  to  be  drawn  for,  on  the 
thirtieth  of  November,  was  directed  to  be  comprised 
in  one  or  more  bills,  as  the  bank  should  desire.  It 
was  at  first  placed  in  one  bill,  but  this  bill  was  after 
ward  returned,  with  a  request  that  it  might  be  con 
verted  into  smaller  sums.  The  bill  returned  was 
cancelled,  and,  in  lieu  of  it,  there  had  been  furnished, 
prior  to  the  ist  of  January,  of  the  present  year,  nine 
hundred  and  thirty-four  thousand  five  hundred  guild 
ers;  the  balance,  three  hundred  and  three  thousand, 
then  remaining  to  be  furnished.  The  sum  of  nine 
hundred  and  thirty-four  thousand  five  hundred 
guilders,  consequently,  appears  twice  in  the  memo 
randum. 

These  two  sums,  of  four  millions  five  hundred  and 
ninety  thousand,  and  nine  hundred  and  thirty-four 
thousand  guilders,  exceed  the  difference  in  question, 
by  one  hundred  and  twenty-four  thousand  three 
hundred  and  sixty-two  guilders. 

The  Treasurer  informs  me,  that  there  are  two  bills 
not  included  in  the  memorandum :  one  for  one  hund 
red  and  twenty-three  thousand  seven  hundred  and 
fifty,  and  the  other  for  six  hundred  and  twelve  guild 
ers;  which  make  up  the  above-mentioned  excess. 
The  former  of  these  two  bills  was  furnished  to  the 
Secretary  of  State  for  the  purpose  contemplated  by 
the  third  section  of  the  act  of  the  last  session,  en 
titled  "  An  act  making  certain  appropriations  therein 
specified." 

Is  it  not  truly  matter  of  regret  that  so  formal  an  ex 
planation,  on  such  a  point,  should  have  been  made 


Loans  77 

requisite  ?  Could  no  personal  inquiry,  of  either  of  the 
officers  concerned,  have  superseded  the  necessity  of 
publicly  calling  the  attention  of  the  House  of  Repre 
sentatives  to  an  appearance,  in  truth,  so  little  signifi 
cant?  Was  it  seriously  supposable  that  there  could 
be  any  real  difficulty  in  explaining  that  appearance, 
when  the  very  disclosure  of  it  proceeded  from  a  volun 
tary  act  of  the  head  of  this  Department? 
With  perfect  respect, 

I  have  the  honor  to  be,  sir, 
Your  most  obedient  and  most  humble  servant, 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

The  Hon.  Jonathan  Trumbull,  Esq., 

Speaker  of  the  House  of  Representatives. 

P.  S. — Another  statement  of  income  and  expendi 
ture  having  been  made,  which  presents  the  subject 
under  another  aspect,  but  agreeing  in  the  result  with 
the  statement  B  is  marked  B  a.1 


LOANS 

Communicated  to  the  Senate,  February  6,  1793. 

TREASURY  DEPARTMENT,  February  5,  1793. 

SIR: 

In  pursuance  of  the  first  part  of  the  order  of  the 
Senate,  of  the  23d  of  January  past,  I  have  the  honor 
to  send,  herewith,  sundry  statements,  marked  A,  AB, 
B,  Ba,  D,  E,  F,2  and  I  beg  the  permission  of  the 

1  For  these  schedules  see  State  Papers,  "  Finance,"  vol.  i.,  p.  196. 
a  For  these  statements,  see  State  Papers,  "  Finance,"  vol.  i.,  pp. 
187-190;  195-200. 


78  Alexander  Hamilton 

Senate  to  add  the  copy  of  a  letter  dated  yesterday, 
which  served  to  transmit  duplicates  of  the  same  docu 
ments  to  the  House  of  Representatives,  and  which 
contains  some  explanations  of  them,  a  repetition  of 
which,  here,  will  be,  thereby,  rendered  unnecessary. 
The  document  C,  referred  to  in  that  letter,  was  also 
sent  to  the  House  of  Representatives,  but  being  of 
considerable  length  a  duplicate  is  not  yet  ready,  and 
I  did  not  think  it  advisable  to  detain  the  other  papers 
till  it  was  ready. 

The  documents,  now  transmitted,  will  answer  the 
whole  of  the  inquiry  contained  in  the  first  part  of 
the  order  above  referred  to,  except  what  regards  a 
distribution  of  the  expenditures,  under  each  head  of 
appropriation,  which  is  in  preparation,  and  will  be 
forwarded  as  soon  as  it  can  be  ready. 

The  situation  in  which  I  am  placed  renders  further 
delay  absolutely  necessary  to  the  fulfilment  of  the 
second  part  of  the  order. 

There  is  a  point  in  my  letter  of  the  i6th  of  January 
to  the  Senate,  concerning  which  some  explanation  is 
requisite.  I  stated,  as  one  motive  to  the  joint  nego 
tiation  of  the  loans,  under  both  acts,  "  an  intimation 
from  our  bankers  in  Holland,  that  a  distinction  might 
prove  an  embarrassment,  being  a  novelty,  the  reason 
of  which  would  not  be  obvious  to  the  money-lenders. " 
This  was  done  from  memory,  without  recurrence  to 
documents,  and  in  a  degree  of  hurry  occasioned  by 
my  anxiety  for  the  speedy  passing  of  the  appropria 
tion  bill,  and  upon  a  revision,  proves  to  be  not  ac 
curate.  The  mistake  arose  in  the  following  manner. 
My  original  idea  was,  to  maintain  a  separation  be- 


Loans  79 

tween  the  two  acts.  This  will  appear  from  my  letter 
of  the  28th  of  August,  1790,  to  our  bankers,  in  which 
I  express  a  desire  that  they  would  endeavor  to  place 
part  of  the  first  loan  upon  one  act,  and  another  part 
upon  the  other  act.  But  they  did  not  carry  this  idea 
into  execution,  for  the  reason  assigned  in  their  an 
swer,  now  before  the  Senate ;  which  is,  that  the  sub 
division  proposed  would,  under  the  circumstances 
of  the  case,  tend  to  excite  speculations  and  doubts 
among  the  money-lenders. 

But,  prior  to  the  receipt  of  their  answer,  I  had 
made  further  inquiry,  and  had  reflected  more  on  the 
subject.  The  result  of  my  inquiry  was  that  the 
money-lenders,  having  been  accustomed  to  lend  on 
the  general  credit  of  the  Government  borrowing,  with 
a  sort  of  general  pledge  of  its  revenues  and  resources, 
the  attempt  to  bottom  a  loan  upon  any  particular 
law  might,  as  a  novelty,  occasion  some  hesitation  and 
embarrassment  among  them;  especially  as  they  are 
known  to  be  a  description  of  men  much  influenced  by 
habit  and  precedent ;  and  the  conclusions,  from  more 
full  reflection,  were  that  the  distinguishing  of  the 
loans  with  reference  to  each  act  might  not  only  em 
barrass  the  business  in  the  first  stages  of  negotiation, 
but  might  interfere  with  an  application  of  the  pro 
ceeds  of  the  loans  in  the  most  convenient  and  bene 
ficial  manner,  according  to  circumstances. 

On  these  considerations  I  abandoned  my  original 
intention,  and  in  my  first  instruction  to  Mr.  Short, 
was  silent  on  the  point. 

These  different  positions  of  the  subject  in  the 
mind,  at  different  times,  and  what  actually  took 


8o  Alexander  Hamilton 

place,  with  regard  to  the  first  loan,  produced  some 
confusion  in  the  recollection  of  facts,  and  led  me  to 
assign  as  a  cause  what  had  been  only  a  collateral  cir 
cumstance,  and  to  ascribe  to  the  bankers  intimations, 
or  rather  information,  which  I  had  received  from 
other  quarters. 

I  submit  this  explanation  of  the  matter  to  the  can 
dor  of  the  Senate,  and  have  the  honor  to  be  with 
perfect  respect, 

Sir,  your  most  obedient  servant, 

ALEXANDER  HAMILTON. 

The  Vice-President  of  the  United  States  and 
President  of  the  Senate. 


Communicated  to  the  Senate,  February  6,  1793. 

TREASURY  DEPARTMENT,  February  5,  1793. 

SIR: 

By  order  of  the  President  of  the  United  States,  I 
have  the  honor  to  transmit  herewith: 

1.  Copies  of  a  power  given  by  him  to  the  Secretary 
of  the  Treasury  for  the  time  being,  dated  the  28th  of 
August,  1790,  for  the  negotiation  of  the  loans  author 
ized  by  the  laws  of  the  4th  and  i2th  of  August,  1790, 
and  of  certain  instructions  relative  thereto,  dated  on 
the  same  day. 

2.  Copies  of  an  authority,  founded  upon  the  power 
of  the  President,  from  me  to  William  Short,  Esquire, 
dated  the  ist  of  September,  1790,  and  of  sundry  let 
ters  from  me  to  the  said  William  Short,  of  dates  from 
the  29th  of  May,  1790,  to  the  3ist  of  December,  1792, 


Loans  8 1 

inclusively,  relating  to  the  negotiation  and  applica 
tion  of  the  above-mentioned  loans. 

3.  Originals  of  sundry  letters  from  William  Short 
to  me,  under  dates  from  the  26.  of  December,  1790,  to 
the  2d  of  November,  1792,  inclusively,  relating  to  the 
same  subject. 

4.  Copy  of  an  authority  from  me  to  Messrs.  Wil- 
hem  and  John  Willink,  Nicholaas  and  J.  Van  Stap- 
horst  and  Hubbard,  bankers  of  the  United  States  at 
Amsterdam,  dated  the  28th  of  August,  1790,  relating 
to  the  first  of  the  loans  made  under  the  above-men 
tioned  acts,  and  copies  of  sundry  letters  to  the  said 
bankers,  of  dates  from  the  28th  of  August,  1790,  to 
the  3ist  of  December,  1792,  inclusively. 

5.  Originals  of  sundry  letters  from  the  said  bank 
ers  to  me,  of  dates  from  the  25th  of  January,  1790,  to 
the  5th  of  November,  1792. 

6.  Copies  of  sundry  letters  of  dates  from  the  i8th 
of  June  to  the  24th  of  September,  1792,  inclusively, 
between  G.  Morris  and  W.  Short,  Esquires,  having 
relation  to  the  above  subjects. 

The  general  power  from  the  President  to  the  Secre 
tary  of  the  Treasury,  of  the  28th  of  August,  1790,  and 
the  communications  from  William  Short,  Esquire,  who 
has  been  the  only  commissioner,  would,  it  is  presumed, 
have  fulfilled  the  terms  of  the  resolution  of  the  Sen 
ate  of  the  23d  of  last  month,  and  are  transmitted, 
pursuant  to  the  request  contained  in  that  resolution. 

But  the  President  has  been  pleased  to  direct  the 
transmission  of  the  other  documents  also,  in  the  sup 
position  that  they  will  serve  to  throw  light  upon  the 
general  subject  of  that  resolution. 

VOL.  III. — 6. 


82  Alexander  Hamilton 

With  perfect  respect,  I  have  the  honor  to  be  sir, 
yours,  etc. 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

The  Vice-President  of  the  United  States  and 
President  of  the  Senate. 

[NOTE. — Of  the  papers  referred  to  in  this  report,  none  are  now  to  be 
found,  except  those  published  with  the  Secretary's  second  report,  of  the 
i3th  of  February,  1 793,  which  follows.] 


LOANS 
Communicated  to  the  House  of  Representatives,  February  13,  1793. 

SIR: 

The  next  most  important  article  of  inquiry  in 
volved  in  the  resolutions  of  the  House  of  Repre 
sentatives  of  the  23d  of  January  last,  and  in  the 
observations  which  have  been  made  respecting  the 
conduct  of  this  Department,  relates  to  the  loans 
negotiated  under  the  acts  of  the  4th  and  i2th  of 
August,  one  thousand  seven  hundred  and  ninety. 

The  papers  which  have  been  transmitted  to  the 
House  by  order  of  the  President  disclose  the  following 
particulars : 

i.  That  the  immediate  superintendence  of  the 
business  of  the  loans  was  confided  to  the  Department 
of  the  Treasury,  being  naturally  connected  with  it. 
This  trust,  besides  the  original  instructions  for  regu 
lating  the  execution  of  it,  which  have  been  com 
municated,  was  of  course  subject  to  such  directions, 
from  time  to  time,  as  the  President  should  think  fit  to 


Loans  83 

give,  or  as  occasions  should  require.  A  considerable 
latitude  of  discretion,  nevertheless,  from  the  very 
nature  of  the  case,  attended  it,  so  as  justly  to  leave, 
on  the  head  of  this  Department,  a  complete  respons 
ibility  in  all  instances  where  special  exceptions  do 
not  appear. 

2.  That  the  first  loan  which  was  obtained  was  un 
dertaken  and  completed  by  the  agency  of  Wilhem 
and  Jan  Willink,  and  Nicholaas  and  Jacob  Van  Stap- 
horst  and  Hubbard,  who,  both  under  the  former  and 
present  Government,  have  been,  and  are,  the  bankers 
of  the  United  States,  at  Amsterdam. 

3.  That,  with  the  single  exception  of  the  first  loan, 
William  Short,  Esq.,  then  Charge  des  Affaires  at  the 
court  of  France,  now  Resident  Minister  at  the  Hague, 
was  constituted  the  sole  agent  of  this  Department  for 
carrying  into  effect  the  powers  confided  to  it;   with 
this  qualification  only,  that,  if  any  negotiation  with  a 
prince  or  state,  to  whom  any  part  of  the  debt  to  be 
discharged  by  the  loans  was  due,  should  be  requisite, 
the  same  was  to  be  carried  on  through  the  person  who, 
in  capacity  of  Minister,  Charge  des  Affaires,  or  other 
wise,  then  was,  or  thereafter  might  be,  charged  with 
transacting  the  affairs  of  the  United  States  with  such 
prince  or  state. 

4.  That  all  payments,  which  have  been  made  out 
of  the  proceeds  of  the  loans,  have  been  made  by  the 
immediate  and  special  order  of  Mr.  Short,  except 
those  upon  the  bills  of  the  Treasurer  for  the  moneys 
drawn  to  this  country,  and  those  to  the  money 
lenders  in  Holland,  which  were  made  in  course  by  our 
bankers,  at  the  periods  they  respectively  became  due. 


84  Alexander  Hamilton 

This  consequently  embraces  all  the  payments  to 
France ;  the  very  last  of  which,  though  agreed  for  by 
Mr.  Morris,  in  consequence  of  his  having  been  em 
ployed  for  a  special  purpose  by  Mr.  Short,  was  not, 
and  could  not,  be  completed,  but  by  the  same  im 
mediate  and  special  direction  of  Mr.  Short. 

It  moreover  appears,  from  the  same  papers,  and 
more  fully  from  the  correspondence  at  large,  now  be 
fore  the  Senate,  that,  except  in  the  particular  in 
stance  which  has  been  just  stated,  with  regard  to  Mr. 
Morris,  there  has  been  no  other  agency  in  the  whole 
business  than  that  of  Mr.  Short,  and  of  the  bankers  at 
Amsterdam  and  Antwerp,  whom  he  necessarily  em 
ployed  as  instruments  in  the  negotiations  with  the 
money-lenders,  and  in  the  receipt  and  disbursement 
of  the  moneys  borrowed.  These,  as  already  men 
tioned,  were,  at  Amsterdam,  the  two  houses  of  Wil- 
hem  and  Jan  Willink,  and  of  Nicholaas  and  Jacob 
Van  Staphorst  and  Hubbard;  at  Antwerp,  a  Mr.  G. 
De  Wolf  was  the  banker. 

It  may  not  be  without  its  uses  to  add,  that  the 
moneys  proceeding  from  the  loans  have  constantly 
remained  in  the  hands  of  the  respective  bankers,  till 
they  have  been  paid  over  to  the  creditors ;  namely, 
the  French  treasury  or  their  bankers,  the  money 
lenders  or  their  representatives,  the  holders  of  the 
bills  drawn  from  this  country  by  the  Treasurer. 
Neither  Mr.  Short  nor  Mr.  Morris  has  ever  had  posses 
sion  of  a  single  guilder.  The  latter,  indeed,  has 
never  had  power  over  one,  excepting  merely  a  sum  of 
105,000  guilders,  by  letter  of  mine,  dated  the  1 3th  of 
September  last,  placed  at  his  disposal  for  paying,  at 


Loans  85 

Paris,  according  to  stipulation,  the  interest  on  the 
debt  due  to  foreign  officers.  The  fact  is,  and  it  is  so 
demonstrated  by  the  correspondence  already  referred 
to,  that  I  never  wrote  a  line  to  Mr.. Morris  on  the  sub 
ject  of  the  loans  or  their  proceeds,  but  in  reference  to 
the  case  just  mentioned,  of  the  interest  payable  to 
foreign  officers,  in  respect  to  which,  local  situation 
governed. 

One  more  circumstance  only  is  necessary  to  be 
noticed  in  this  place,  with  a  view  to  the  elucidation 
intended.  It  is  this :  that  the  last  payment,  though 
originating  prior  to  the  change  in  the  political  posi 
tion  of  France,  of  the  loth  of  August  last,  not  having 
been  consummated  till  the  6th  of  September  follow 
ing,  fell,  of  course,  under  the  disposition  of  those  then 
in  possession  of  the  power  of  the  nation. 

It  could  not  but  have  been  unexpected  to  me,  that 
exception  should  be  taken  to  the  report  lately  made 
by  me  on  the  subject  of  foreign  loans,  for  the  omission 
of  details  which  I  did  not,  at  the  time,  and  do  not  yet 
conceive  to  have  been  called  for,  by  the  terms  of  the 
resolutions  upon  which  it  was  founded.  The  request 
addressed  to  the  President,  by  those  resolutions,  was, 
that  he  would  cause  to  be  laid  before  the  House  a 
particular  account  of  the  sums  borrowed,  under  his 
authority,  by  the  United  States;  the  terms  on  which 
each  loan  was  obtained;  the  applications  which 
had  been  made  of  the  moneys,  agreeably  to  appro 
priations;  the  balances,  if  any,  which  remained 
unapplied;  specifying,  also,  at  what  times  interest 
commenced  on  the  several  sums  obtained,  and  at  what 
times  it  was  stopped  by  the  several  payments  made. 


86  Alexander  Hamilton 

It  was  not  natural  to  imagine  that  these  expressions 
were  designed  to  comprehend  a  specification  of  the 
precise  authorities  under  which  the  loans  were  ne 
gotiated,  of  the  names  of  the  persons  by  whom  they 
were  negotiated,  of  the  particular  place  or  places  where 
the  balances  unexpended  of  the  sums  that  had  been 
drawn  for  to  the  United  States  were  deposited.  Still 
less  natural  was  it  for  me  to  anticipate  surmises, 
which  could  give  to  such  particulars  the  shadow  of 
importance.  But,  as  animadversions  have  attended 
the  omission  of  those  details,  I  ought  to  regard  it  as 
an  admonition  to  me  to  be  more  full  and  precise  in 
my  present  communication — a  motive  which  co 
operates  with  my  desire  to  throw  all  possible  light 
upon  the  subject. 

The  first  general  circumstance  which  requires  to  be 
noticed  and  explained,  after  the  particulars  that  have 
been  communicated,  is  this :  that  all  the  loans  which 
have  been  hitherto  obtained  have  been  made  under 
the  authority  of  both  acts,  without  particular  refer 
ence  to  either. 

The  idea  originally  entertained  was  to  conduct 
them  on  a  different  plan,  founding  each  loan  upon  one 
or  the  other  of  the  acts,  as  will  be  seen  by  my  letter  of 
the  28th  of  August,  1790,  to  our  bankers  at  Amster 
dam  ;  at  the  same  time  that  it  will  appear,  from  the 
same  letter,  that  the  separation  did  not  appear  to  me 
a  matter  of  consequence,  and  that  I  anticipated  the 
possibility  of  a  difficulty  in  adhering  to  it  in  the  par 
ticular  case.  That  difficulty  proved,  in  the  opinion 
of  the  bankers,  to  be  of  sufficient  moment  to  render 
the  arrangement  contemplated,  under  the  circum- 


Loans  87 

stances  of  the  case,  unadvisable,  as  they  inform  me  in 
their  answer  to  the  above-mentioned  letter. 

But,  prior  to  the  receipt  of  that  answer,  further  in 
quiry  and  reflection  had  determined  me  to  abandon 
my  original  idea,  as  likely  to  produce  embarrassment 
and  inconvenience,  both  in  the  negotiation  of  the 
loans  and  in  the  application  of  their  proceeds.  It 
was  accordingly  concluded  to  let  the  loans  proceed 
indiscriminately,  upon  both  acts. 

These  loans  were  to  have  reference  to  two  pur 
poses:  first,  the  reimbursement  of  the  foreign  debt; 
second,  the  purchase  of  the  domestic  debt  at  its 
market  price. 

There  were  weighty  reasons  for  carrying  on  both 
these  operations  concurrently.  The  arrears  to 
France  had  been  a  considerable  time  accumulating. 
It  was,  in  every Isense,  proper  that  a  reimbursement 
of  them  should  begin  without  delay,  and  desirable, 
for  obvious  reasons,  that  it  should  go  on  without  any 
very  considerable  chasms  or  intermissions.  This 
manner  of  proceeding  could  not  but  have  the  fair 
est  chance  of  being  the  most  satisfactory  and  con 
venient  to  France ;  unless,  indeed,  the  business  were 
to  have  proceeded  upon  the  principle  of  an  entire 
postponement  of  the  domestic  object  to  that  of  the 
reimbursement. 

But  very  cogent  reasons  rendered  this  course  not 
the  most  eligible;  the  early  commencement  of  pur 
chases  of  the  debt  was  a  matter  of  real  and  great 
importance. 

It  was  important  in  two  relations:  as  it  regarded 
the  advantages  to  the  Government,  from  redeeming  a 


88  Alexander  Hamilton 

portion  of  the  debt  at  low  prices;  and  still  more,  as 
it  regarded  the  savings  to  the  country  from  raising 
the  price  of  stock  on  foreign  purchasers;  the  bene 
ficial  influence  upon  the  credit  of  the  nation,  abroad 
and  at  home,  to  be  expected  from  a  quick  apprecia 
tion  of  the  public  obligations;  the  benefit  to  the  pub 
lic  creditors  in  general,  and  to  the  most  meritorious 
classes  of  them  in  particular,  which  would  result  from 
the  same  cause;  all  which  objects  were  suggested 
from  the  Treasury,  as  motives  to  the  provision  re 
specting  purchases,  and  are  evidently  contemplated 
in  the  preamble  of  the  act  which  makes  that 
provision. 

Exclusive  of  the  other  advantages  which  have  been 
cited,  and  which  are  of  a  nature  truly  precious  and  im 
portant,  that  of  preventing  foreigners  from  acquiring 
the  property  of  our  citizens,  at  a  great  undervalue,  is 
too  obvious  not  to  be  estimated,  as  it  ought  to  be,  at 
first  sight.  It  cannot  require  argument  to  show  how 
great  an  evil  it  was,  that  foreigners  should  be  able  to 
acquire,  with  nine  or  ten,  that  for  which  the  country 
would  ultimately  have  to  pay  them  twenty,  with  full 
interest  in  the  interval ;  nor  how  much  it  merited  the 
attention  of  the  Government  to  prevent  or  lessen  so 
serious  an  evil. 

But  the  influence  which  the  purchases  by  the  Gov 
ernment  may  have  had  upon  this  event  may  not  be 
equally  obvious.  It  is,  however,  not  difficult  to 
be  traced.  Price  naturally  keeps  pace  with  compe 
tition  and  demand;  whatever  increases  the  latter 
necessarily  tends  to  an  augmentation  of  the  former. 
Merely,  then,  as  another  purchaser,  by  adding  to  the 


Loans  89 

competition  and  demand,  the  purchases  of  the  Gov 
ernment  were  calculated  to  influence  a  rise  of  price. 
But  they  had  an  effect  more  than  proportioned  to 
their  real  extent.  Imagination  has  much  to  do  in  all 
such  questions,  and  in  scarcely  any  thing  so  much  as 
in  what  relates  to  public  funds.  Experience  proves 
that  it  is  here  exerted  with  uncommon  effect.  The 
appearance  of  the  Government,  as  a  purchaser,  has 
not  failed  to  excite  the  expectation  of  a  greater  de 
mand  than  was  real,  because  the  extent  of  the  re 
sources  to  be  employed  might  be  very  great,  and  was 
unknown;  which,  by  stimulating  the  zeal  of  those 
who  wanted  to  buy,  lest  the  price  should  rise  suddenly 
and  considerably  upon  them,  and  by  encouraging 
those  who  wanted  to  sell,  under  the  hope  of  a  better 
price,  to  hold  back  the  commodity,  has,  in  both  ways, 
generally  contributed  to  give  a  spring  to  the  market. 
Prices  once  raised,  when  founded  on  intrinsic  value, 
tend  to  maintain  themselves ;  because  those  who  have 
given  them  are,  for  the  most  part,  interested  in  keep 
ing  them  up;  and  every  new  impulse  which  they 
receive  serves  to  carry  them  rapidly  to  their  just 
level. 

Those  who  have  been  most  attentive  to  the  opera 
tion  of  the  public  purchases  will  have  the  least  doubt 
that  they  had  a  material  agency  in  accelerating  the 
appreciation  of  the  public  stock. 

An  inquiry  naturally  arises  here :  Were  the  moneys 
which  were  drawn  from  Europe,  on  account  of  the 
foreign  loans,  the  instrument  of  the  purchases  to 
which  these  beneficial  effects  are  ascribed? 

I  answer,  that  these  purchases  are  to  be  attributed 


90  Alexander  Hamilton 

to  the  instrumentality  of  that  fund ;  that,  had  it  not 
been  for  this  resource,  they  could  not  have  been  made 
at  the  early  periods  when  most  of  them  were  made. 
The  course  of  the  transaction  will  be  fully,  and  with 
more  propriety,  explained  in  another  place. 

An  attention  to  both  objects — to  the  reimburse 
ments  to  France,  and  to  the  purchases  of  the  debt, 
rendered  expedient  a  submission  even  of  the  first 
loan.  Considerations  of  the  moment  seconded  those 
of  a  general  nature,  to  induce  an  immediate  payment 
to  that  country.  The  loan  had  been  undertaken 
without  previous  authority  from  hence,  with  a  view 
to  such  payment;  this  was  known,  and  a  correspond 
ent  expectation  excited.  The  immediate  situation  of 
the  French  finances  rendered  a  payment,  at  the  par 
ticular  juncture,  more  than  ordinarily  interesting. 
In  such  a  state  of  things,  there  could  be  no  hesitation 
about  applying  a  large  part  of  the  loan  to  that  object. 
Another  part  of  it  was,  of  necessity,  applied  to  the 
payment  of  the  sums  that  were  falling  due  on  the 
Dutch  loans;  and  it  is  presumed  that  the  reasons 
which  have  been  assigned  will  appear  to  have  been 
sufficiently  powerful  to  have  dictated  the  drawing  of 
a  part  of  it  to  the  United  States. 

Accordingly,  a  million  and  a  half  of  the  three  mil 
lions  borrowed  were  appropriated  to  France ;  some 
thing  more  than  eight  hundred  thousand  guilders 
were  drawn  for  here,  and  the  remainder  of  the  loan 
was  left  to  be  disbursed  in  Holland. 

It  shall  not  be  concealed,  though  I  am  aware  that 
the  acknowledgment  may  be  a  subject  of  criticism, 
that  the  conduct  which  was  pursued,  both  with  re- 


Loans  91 

gard  to  this  and  to  the  succeeding  loan,  was,  in  some 
degree,  influenced  by  a  collateral  consideration.  The 
Government  had  but  just  adopted  a  plan  for  the  re 
storation  of  public  credit.  The  periodical  payment 
of  interest  was  to  commence  on  the  ist  of  April,  1791. 
A  considerable  part  of  the  revenue,  out  of  which 
the  moneys  were  to  arise,  was  only  to  begin  to  accrue 
on  the  ist  of  January  preceding.  This  revenue  was 
liable  to  credits  of  four,  six,  and  twelve  months. 

How  far  its  eventual  product  would  answer  ex 
pectation  ;  how  far  the  punctuality  of  payments  could 
be  relied  upon,  were  points  unascertained,  and  which 
required,  to  their  ascertainment,  much  more  experi 
ence  than  had  been  obtained.  In  such  a  situation  it 
was  not  only  natural,  but  necessary,  for  an  adminis 
trator  of  the  finances  to  doubt ;  and,  doubting,  it  was 
his  duty  to  call  to  the  aid  of  the  public  credit  every 
auxiliary  which  it  was  in  his  power  to  command.  He 
was  bound  to  reflect,  that  a  failure  in  any  stipulated 
payment  would  be  fatal  to  the  dawning  credit  of  the 
country;  to  the  reputation  of  the  Government,  just 
beginning  to  rise.  That  a  wound  inflicted  upon 
either,  at  so  early  a  stage,  under  all  the  circumstances 
of  opposition  to  the  Constitution,  which  had  existed 
in  the  community,  would  have  been  deeply  felt,  and 
might  either  not  have  admitted  of  a  cure  at  all,  or 
not  till  after  a  length  of  time,  and  a  series  of  mis 
chiefs  ;  that  it  could  not  but  be  an  important  service 
rendered  to  the  country  to  ward  off  so  great  a  mis 
fortune  by  the  temporary  use  of  any  extraordinary 
resource  which  might  be  at  hand,  till  time  was  given 
for  more  effectual  provision. 


9 2  Alexander  Hamilton 

If,  in  the  course  of  such  reflections,  a  doubt  had 
occurred  about  the  strict  regularity  of  what  was  con 
templated  as  a  possible  resort,  a  mind  sufficiently 
alive  to  the  public  interest,  and  sufficiently  firm  in  the 
pursuit  of  it,  would  have  dismissed  that  doubt,  as  an 
obstacle,  suggested  by  a  pusillanimous  caution,  to  the 
exercise  of  those  higher  motives  which  ought  ever  to 
govern  a  man  invested  with  a  great  public  trust.  It 
would  have  occurred  that  there  was  reasonable 
ground  to  rely,  that  the  necessity  of  the  case,  and  the 
magnitude  of  the  occasion,  would  insure  a  justifica 
tion,  and  that,  if  the  contrary  should  happen,  there 
remained  still  the  consolation  of  having  sacrificed 
personal  interest  and  tranquillity,  no  matter  to  what 
extent,  to  an  important  public  interest,  and  of  having 
avoided  the  humiliation  which  would  have  been 
justly  due  to  an  opposite  and  to  a  feeble  conduct. 

The  disposition  which  was  resolved  upon  with  re 
gard  to  the  first  loan  involved,  necessarily,  a  decision 
of  the  point,  that  the  loans  might  be  placed  on  the 
joint  foundation  of  both  acts.  That  loan  having  been 
undertaken,  as  already  mentioned,  without  previous 
authority,  and,  consequently,  without  a  particular 
eye  to  either  act,  it  was  probable  that  it  would  be 
found  too  late  to  make  an  apportionment  of  one  part 
of  the  sum  borrowed  to  one  act,  of  another  part  to  the 
other  act.  In  that  case,  the  distributive  application 
of  the  fund  to  the  different  objects  was  to  be  relin 
quished,  or  the  possibility  was  to  be  admitted  of  the 
loan  being  left  to  stand  upon  the  authority  of  both 
acts.  The  same  disposition  of  the  first  loan  will  also 
illustrate  the  convenience  and  expediency  of  the  plan 


Loans  93 

which  was  finally  adopted — that  is,  of  placing  the 
loans  on  the  basis  of  both  acts. 

The  idea  of  a  concurrent  execution  of  both  the  ob 
jects  to  which  the  loans  were  destined  could  not,  con 
veniently,  have  been  pursued  upon  the  plan  of  a 
separation  of  the  loans,  which,  to  be  effectual,  would 
include  the  strict  application  of  the  proceeds  of  each 
to  the  purposes  of  the  particular  act  upon  which  it 
was  founded. 

Amsterdam  was  naturally  looked  to  as  the  great 
scene  of  the  intended  loans.  There,  as  everywhere 
else,  there  is  but  a  certain  quantity  of  money  floating 
in  the  market,  from  time  to  time,  beyond  the  neces 
sary  demands  of  trade  and  industry,  seeking  for  em 
ployment  in  loans.  This  quantity,  of  course,  varies 
at  different  periods,  from  a  variety  of  causes.  Of  the 
quantity  at  any  time  afloat,  but  a  certain  portion  can 
be  commanded  by  any  one  borrowing  power,  owing 
to  the  competition  of  other  borrowers,  who  have, 
each,  their  connections,  through  their  bankers,  with 
different  sets  of  undertakers  and  money-lenders. 
Nor  is  it  always  that  considerable  loans  can  be  had, 
at  any  rate.  There  are  certain  seasons  only,  when 
they  are  practicable. 

To  have  brought  two  loans  upon  the  market  at  one 
time,  as  an  opportunity  of  borrowing  offered,  which 
must  have  been  the  case  in  order  to  make  concurrent 
provision  for  both  the  objects  in  question,  if  the  prin 
ciple  of  a  separation  of  the  loans  had  been  adopted, 
would  have  been  to  exhibit  to  the  money-lenders  a 
very  unusual  appearance.  With  men  known  to  be 
much  influenced  by  precedent  and  habit,  such  an 


94  Alexander  Hamilton 

appearance  could  not  have  failed  to  prove  a  source  of 
speculation  and  conjecture,  and  might  have  led  to  a 
confused  idea  that  the  wants  of  the  United  States 
were  excessive — a  supposition  by  no  means  calcu 
lated  to  promote  their  credit.  It  would,  moreover, 
have  been  a  departure  from  that  simplicity  of  pro 
cedure  which,  where  numbers  are  concerned,  is  always 
of  moment  to  a  right  conception  of  the  business  to  be 
accomplished,  and  ought  not  to  be  abandoned  but  for 
reasons  of  real  utility  and  weight. 

To  have  instituted  the  loans  successively,  founding 
each  upon  one  or  the  other  of  the  acts,  would  have 
had  a  tendency  to  occasion  longer  intervals  between 
the  payments  to  France  than  was  desirable.  The  in 
tervention  of  a  loan  for  the  purpose  of  purchases 
would  have  created,  of  course,  a  very  considerable 
chasm.  It  may  be  objected,  that  such  chasms  did 
happen  on  the  plan  which  was  pursued.  This  is  true, 
in  two  instances;  but  the  most  material  of  the  two 
proceeded  from  casualties  foreign  to  the  plan  itself, 
which  are  detailed  in  the  correspondence  more  than 
once  alluded  to. 

It  is  possible,  too,  that  a  separation  of  the  loans 
might  have  rendered  -it  less  easy  to  take  advant 
age  of  a  state  of  the  market  favorable  to  their 
extension  at  a  particular  juncture.  The  loan  to  be 
brought  on  the  market  might  relate  to  the  pur 
chase  of  the  debt.  The  moment  might  be  favorable 
to  a  more  considerable  loan  than  was  within  the 
limits  prescribed  for  that  object,  and  the  opportun 
ity  might  slip  before  a  second  could  be  instituted. 
In  this  business,  moments  are  often  of  importance, 


Loans  95 

and  are  to  be  embraced  with  promptitude  and 
dexterity. 

Thus,  it  appears  that  in  different  ways  the  negoti 
ation  of  the  loans  might  be  embarrassed  by  their 
separation. 

But  the  most  obvious,  if  not  the  most  serious,  of  the 
inconveniences  which  would  have  attended  it,  re 
spects  the  application  of  the  sums  borrowed.  This 
could  not,  then,  have  been  moulded  as  the  interest  or 
policy  of  the  Government  might  dictate.  A  loan  for 
the  purchase  of  the  debt  might  have  been  made, 
under  prospects  promising  a  ready  and  beneficial  in 
vestment  of  it ;  but,  before  the  investment  was  made, 
a  change  of  the  market  might  render  it  ineligible,  in 
volving  the  alternative,  either  of  a  disadvantageous 
investment,  or  of  leaving,  perhaps,  a  large  sum  of 
money  a  long  time  unemployed.  Such  a  state  of 
things  might  have  produced,  to  the  banks,  an  ad 
vantage,  and,  to  the  Government,  a  loss,  of  magni 
tude  sufficient  to  give  color  to  a  surmise  that  the 
public  interest  had  been  sacrificed  to  the  profit  of 
those  institutions.  The  contrary  course  has  essen 
tially  avoided  that  evil,  which,  in  this  and  in  other 
instances,  would  have  been  incident,  in  a  far  greater 
degree,  to  the  modes  of  proceeding,  contrasted  with 
those  that  have  been  pursued,  than  has,  in  reality, 
attended  them. 

Or,  political  considerations  might  have  rendered  it 
advisable  to  transfer  the  application  of  the  fund  from 
one  object  to  the  other. 

Of  this,  the  case  of  St.  Domingo  presents  an  ex 
ample.  It  might  have  happened,  on  the  plan  of 


96  Alexander  Hamilton 

separate  loans,  that  there  was  no  fund  in  hand  but  for 
the  purchase  of  the  debt.  Then,  on  the  principle  of 
that  plan,  there  would  have  been  no  fund  in  the  dis 
position  of  the  Executive,  applicable  to  the  other  ob 
ject,  which  would  have  embarrassed  the  performance 
of  a  duty  toward  a  friendly  Power,  and,  in  a  way 
which  included  the  positive  advantage  to  the  country, 
of  paying,  directly,  a  part  of  its  foreign  debt  in  its 
own  productions. 

Such  were  the  embarrassments  avoided,  and  such 
the  conveniences  secured,  by  the  plan  of  making  the 
loans  indiscriminately,  upon  the  authority  of  both 
acts. 

In  the  opposite  plan,  I  can  discern  no  counterbal 
ancing  advantage  nor  convenience. 

Consequently,  if  both  are  equally  legal,  there  can 
be  no  doubt  which  of  them  ought  to  have  been 
preferred. 

If  there  be  any  want  of  legality  in  the  plan  which 
has  been  pursued,  I  was  not,  at  the  time,  and  am  not 
yet,  sensible  of  it. 

I  know  of  no  rule  which  renders  it  illegal  in  an 
agent,  having,  from  the  same  principal,  two  authori 
ties  to  borrow  money,  whether  for  one,  or  different 
purposes,  to  unite  the  loans  he  may  make,  upon  the 
foundation  of  both  authorities,  provided  the  terms 
of  them  be  consistent  with  both  or  either  of  his  com 
missions.  If  the  purposes  are  different,  it  will  be 
incumbent  upon  him  to  take  care  that  the  applica 
tion  of  the  moneys  borrowed  makes  the  proper 
separation,  and,  doing  this,  he  will  have  fulfilled  his 
trust.  To  test  this  position,  it  seems  only  necessary 


Loans  97 

to  ask:  Whether  the  principal,  in  such  case,  would 
not  be  fully  bound  to  the  lenders? 

In  reflecting,  originally,  upon  the  regularity  of  the 
proceeding  meditated,  there  was  but  one  source  of 
hesitation — the  difference  in  the  funds  upon  which 
the  loans  were  to  rest.  But  the  following  reasoning 
satisfied  the  scruple.  The  pledging  of  particular 
funds  is  for  the  security  of  the  lenders.  If  they  are 
willing  to  waive  the  special  security,  by  lending  on 
the  general  credit  of  the  Government,  or  to  dispense 
with  the  preference  of  one  fund  to  another,  where  two 
are  pledged,  by  lending  indiscriminately  on  the  credit 
of  both,  the  one  or  the  other  circumstance  must  be 
alike  indifferent  to  the  Government.  The  authority 
will  have  been  well  executed,  to  the  extent  necessary 
for  public  purposes,  and  if  anything  remains  un 
executed,  it  will  be  in  enlargement,  not  in  abridg 
ment,  of  the  public  rights.  It  is,  however,  presumed, 
that  the  practical  construction,  in  the  present  case, 
will  be,  that  the  two  funds  pledged  will  constitute 
an  aggregate  for  the  joint  security  of  the  moneys  bor 
rowed  upon  both  acts. 

The  second  general  circumstance  respecting  the 
foreign  loans,  negotiated  under  the  acts  of  the  4th 
and  1 2th  of  August,  which  requires  attention,  re 
lates  to  the  terms  on  which  they  have  been  obtained. 
These,  it  appears,  have  been  represented  as  neither 
honorable  nor  advantageous. 

The  following  facts,  witnessed  by  the  correspond 
ence  before  the  Senate,  more  than  once  referred 
to,  and  well  known  to  all  who  have  had  opportun 
ities  of  information,  demonstrate  that  the  terms  of 


98  Alexander  Hamilton 

those  loans  have  been  both  honorable  and  advant 
ageous. 

1 .  There  is  not  one  of  them,  which  originated  under 
these  acts,  that  was  not  effected  upon  conditions 
equally  favorable  with  those  attending  the  loans  of 
the  contemporary  borrowing  Powers  of  the  most 
tried  resources  and  best-established  credit,  and  more 
favorable  than  were  obtained  by  some  Powers  of 
great  respectability. 

2.  The  United  States  took  a  lead  in  the  market,  in 
regard  to  the  subsequent  reductions  of  interest,  hav 
ing  had  either  earlier  or  more  complete  success  than 
any  other  borrowing  Power. 

3.  From  a  rate  of  five-per-cent.  interest,  and  4^- 
per-cent.  charges,  which  marked  the  level  of  the 
market  when  they  began  their  loans,  they,  in  the 
course  of  a  single  year,  brought  down  the  terms  to 
four-per-cent.  interest,  and    five-per-cent.  charges; 
that  is,  from  an  interest  on  the  net  sum  received 
(including  an  indemnification  for  charges)  of  5.5012, 
something  more  than  5^  per  cent. ,  to  an  interest  on  the 
like  sum  of  4.4951,  something  less  than  4^  per  cent. 

When  this  state  of  things  is  applied  to  a  Govern 
ment  only  in  the  third  year  of  its  existence,  and  to  a 
country  which  had  so  recently  emerged  from  a  total 
derangement  of  its  finances,  it  would  seem  impossible 
to  deny  that  the  issue  is  not  only  honorable  but  flat 
tering — unless,  indeed,  it  can  be  denied,  that  a 
sound  and  vigorous  state  of  credit  is  honorable  to  a 
nation. 

I  forbear  a  comparison  between  the  loans  of  the 
present  and  of  the  former  Government  of  this 


Loans  99 

country,  because  an  immense  disparity  of  circum 
stances  would  render  it  an  improper  one, — further 
than  to  take  notice  of  a  very  great  error  which  has 
been  on  some  occasions  advanced.  It  has  been  al 
leged,  to  disparage  the  management  under  the  present, 
that  the  loans  of  the  former  Government,  in  a  situa 
tion  comparatively  very  disadvantageous,  have  been 
effected  upon  equal  terms;  and,  in  proof  of  this,  an 
appeal  has  been  made  to  the  loan  of  2,000,000  of 
guilders,  at  four  per  cent.,  which  is  that  of  the  pth  of 
March,  1784. 

Nothing  can  manifest  more  clearly  than  this  the 
very  precipitate  and  superficial  views  with  which 
suggestions  on  important  public  subjects  are  some 
times  made.  The  last  four-per-cent.  loan  obtained 
under  the  existing  laws,  including  charges,  is  a  real 
4^-per-cent.  loan,  or,  more  exactly,  a  4.495i-per-cent. 
loan.  The  four-per-cent.  loan  of  March,  1784,  is  a 
real  6.6468-per-cent.  loan.  The  difference,  which  ex 
ceeds  two  per  cent.,  arises  principally  from  extra 
premiums  and  gratifications  which  were  allowed  upon 
this  loan,  and  which  are  unknown  to  the  other. 

Much  praise  is,  no  doubt,  due  to  the  exertions 
which  effected  the  loans  under  the  former  Govern 
ment.  A  superiority  of  merit  shall  readily  be  con 
ceded  to  them  from  the  circumstances  under  which 
they  were  made,  and  their  signal  utility  in  the  Revo 
lution.  But  it  is  not  necessary  to  their  eulogium  to 
affirm  that  they  were  made  upon  equal  terms  with 
those  of  the  loans  lately  obtained,  or  to  deny  the 
goodness  of  the  terms  of  the  latter.  Truth  will  not 
justify  the  one  or  the  other. 


ioo  Alexander  Hamilton 

The  facts  which  have  been  stated  prove  that  the 
terms  of  the  loans  are  advantageous  as  well  as  honor 
able.  They  are  comparatively  advantageous,  be 
cause  they  are  as  moderate  as  other  Powers,  in  the 
best  credit,  have  allowed;  and  they  are  absolutely 
advantageous,  because  the  highest  real,  not  nominal, 
rate  of  interest  which  has  been  given  does  not  exceed 
5.5012 — a  fraction  more  than  5^  per  cent. ;  while  the 
lowest  real  rate  is  4.4951 — a  fraction  less  than  4^ 
per  cent. 

If  the  question,  whether  advantageous  or  not,  be 
tested  by  the  purposes  for  which  the  loans  have  been 
made,  the  conclusion  is  equally  in  their  favor.  The 
payments  on  account  of  the  foreign  debt  were  an  in 
dispensable  obligation.  Unless  it  can  be  shown  that 
they  might  have  been  derived  from  another  and  more 
advantageous  source,  it  will  follow  that  it  was  the 
interest  of  the  Government  to  avail  itself  of  the  re 
source  which  has  been  employed,  because  it  was  its 
duty  to  discharge  its  obligations. 

It  is  sometimes  urged  that  foreign  loans,  for  what 
ever  purpose,  are  pernicious,  because  they  serve  to 
drain  the  country  of  its  specie  for  the  payment  of 
interest,  and  for  the  final  reimbursement  of  principal ; 
that  it  would  be  preferable  for  that  reason  to  procure 
loans  at  home,  even  at  a  higher  rate  of  interest. 

To  this  several  answers  may  be  given,  some  of  a 
special,  others  of  a  general  nature. 

In  reference  to  the  reimbursement  of  the  foreign 
debt  it  may  be  observed,  that,  as  a  debt  had  already 
been  incurred  abroad,  upon  which  interest  was  pay 
able,  the  contracting  of  new  loans  there  for  the 


Loans  101 

reimbursement  of  that  debt  would  leave  us,  as  to  the 
demand  for  the  exportation  of  our  specie,  just  where 
we  originally  stood. 

Moreover,  if  the  money  could  have  been  borrowed 
at  home  for  that  reimbursement,  the  remittance  of  it 
would  have  been  ruinous  to  the  country.  The  mere 
necessity  of  remitting  could  not  alone  have  increased 
the  foreign  demand  for  our  commodities,  so  as  to 
deduce  from  an  extra  exportation  of  them  the  re 
quisite  means  of  payment;  and,  if  our  specie  was  to 
perform  the  office,  the  country  would  speedily  have 
been  exhausted  to  a  degree  inconsistent  with  the  sup 
port  of  its  commerce  and  industry.  The  quantity  of 
coin  in  the  United  States  has  never  been  considerable 
enough  for  such  an  operation. 

But  this  very  state  of  things  would  have  rendered 
the  procuring  of  the  money,  from  domestic  resources, 
impracticable.  These,  it  may  be  safely  affirmed,  are 
too  limited  for  extensive  loans,  of  any  considerable 
degree  of  permanency. 

In  the  last  place :  The  expedient  of  domestic  loans 
would  not  prevent  the  evil  which  is  desired  to  be  pre 
vented.  Foreigners  would  either,  in  the  first  in 
stance,  bring  their  moneys  to  subscribe  them  to  the 
loans,  or  they  would  afterwards  purchase  the  stock 
arising  from  them;  and,  in  either  case,  they  would 
equally  draw  away  the  money  of  the  country  on  ac 
count  of  their  interest  and  principal.  The  only  con 
sequence  of  giving  a  disproportionate  rate  of  interest 
for  domestic  loans  would  be,  that  our  specie  would  be 
carried  away  so  much  the  faster. 

Experience  having  shown  that  nations  sometimes 


io2  Alexander  Hamilton 

pay  more  regard  to  their  external  than  to  their  inter 
nal  credit,  this  consideration  co-operates  with  reasons 
of  convenience,  to  induce  moneyed  men  abroad  to  be 
content  with  a  lower  rate  of  interest,  stipulated  to 
be  paid  in  their  own  country,  than  if  the  place  of  pay 
ment  be  in  another  country,  making  even  a  greater 
difference  than  is  an  equivalent  for  the  expense  and 
risk  of  obtaining  remittances. 

The  clear  inference  from  these  observations  is, 
that,  with  regard  to  the  reimbursement  of  the  foreign 
debt,  no  other  expedient  than  that  of  foreign  loans 
was  practicable  or  eligible. 

The  utility  of  that  part  of  the  loans  which  has  refer 
ence  to  the  purchase  of  the  debt  has  already  been 
explained  in  certain  views.  So  far  as  their  agency 
has  been,  hitherto,  concerned  in  that  operation,  it  is 
a  sufficient  demonstration  of  the  advantage  of  the 
measure  to  state,  that  the  sum  invested  in  purchases, 
up  to  the  period  of  the  last  report  to  Congress,  has 
redeemed  what  is  equal  to  an  annuity  of  6.15  per 
cent.,  including,  also,  the  advantage  of  sinking  a 
capital  more  than  fifty  per  cent,  greater  than  the 
sum  expended. 

A  valuable  profit  will  arise  from  the  investment  of 
the  sums  on  hand,  either  in  a  payment  to  the  bank  or 
in  the  purchase  of  stock.  The  liberation  of  an  an 
nuity  of  six  per  cent,  can  be  secured,  while,  upon  a 
great  part  of  the  fund  which  is  to  effect  it,  no  more 
than  4^  per  cent,  is  payable,  and  less  than  5^  upon 
the  other  part.  The  mean  of  these  rates  being  five 
per  cent.,  an  annual  saving  of  one  per  cent,  may  be 
effected,  which,  upon  2,000,000  of  dollars,  interest  at 


Loans  103 

five  per  cent.,  is  equal  to  a  capital  or  gross  sum  of 
400,000  dollars — an  item  certainly  of  no  inconsider 
able  consequence. 

Against  the  advantages  which  are  claimed  in  favor 
of  the  loans,  it  is  natural  to  place  the  loss  of  interest 
incident  to  the  delays  which  have  attended  their  ap 
plication  to  the  purposes  for  which  they  were  ob 
tained.  This  leads  to  an  examination  of  the  cases  of 
delay,  their  causes,  and  the  circumstances,  if  any, 
which  counterbalance  them. 

There  are  three  instances  of  material  delay:  one 
respecting  the  first  loan,  another  the  second  loan,  and 
a  third  a  part  of  the  two  last  loans. 

The  first  loan,  it  will  be  seen,  was  not  applied  till  a 
considerable  time  after  its  commencement.  It  has 
been  already  intimated,  that  it  was  undertaken  with 
out  previous  authority  from  this  country.  The 
motives  to  the  measure  are  detailed  in  a  letter  from 
our  bankers,  of  the  25th  of  January,  1790,  a  copy  of 
which  accompanies  the  communications  herewith 
made  by  order  of  the  President.  A  regard  to  those 
motives  led  to  an  acceptance  of  the  loan.  Nor  could 
it  have  been  deemed  an  unfortunate  circumstance, 
that  such  an  auxiliary  to  the  operations  of  the 
Treasury  had  been  previously  prepared. 

The  laws  authorizing  the  loans  passed  the  4th  and 
1 2th  of  August.  As  early  as  the  28th  of  that  month, 
the  acceptance  above  mentioned  was  communicated, 
and  the  application  of  1,500,000  florins,  in  a  payment 
to  France,  directed.  So  far,  no  time  was  lost,  more 
than  could  not  have  been  avoided. 

But  the  bills  for  the  sum  to  be  brought  here  were 


104  Alexander  Hamilton 

not  drawn  till  some  months  after.  This  proceeded 
from  an  unwillingness  to  risk  the  public  credit  by 
drawing  before  there  was  a  certainty  of  funds  to  an 
swer  the  drafts.  It  was  not  impossible  that  the  great 
delay  which  had  attended  the  passing  of  the  law  for 
borrowing,  might  have  led  the  bankers  to  come  to 
some  arrangement  with  the  money-lenders  for  sur 
rendering  the  moneys  paid  in,  and  terminating  the 
loan.  Independent  of  this  source  of  apprehension, 
they  had  expressed  themselves,  in  their  letter  com 
municating  the  step  they  had  taken,  to  this  effect: 
"  To  spare  the  United  States  all  possible  advance  of 
interest,  while  the  money  shall  remain  unappro 
priated,  we  shall  issue  the  recipisses  at  the  option  of 
the  buyers  to  take  them  so  late  as  they  please,  on  the 
expectation  the  three  millions  would  be  placed  in  a 
few  months."  This,  though  it  announced  an  expect 
ation  that  the  moneys  would  be  paid  in,  in  a  few 
months,  did  not  render  the  event  certain.  And  as 
the  bankers  appeared,  from  that  precaution,  to  have 
adverted  to  the  idea  of  saving  the  United  States  an 
advance  of  interest,  it  was  supposable  that  they 
might  have  found  means  still  further  to  procrastinate 
the  payments,  or  a  considerable  part  of  them,  till 
they  had  received  a  confirmation  of  the  loan.  This 
policy  would  have  been  the  more  natural,  as  they 
risked  the  loss  of  interest  themselves,  if  the  transac 
tion  should  not  have  been  finally  ratified. 

Under  such  circumstances,  I  thought  it  most  pru 
dent  to  defer  the  drafts  till  advice  was  received  of 
the  actual  progress  of  the  loans.  There  was  no  room 
to  hesitate  between  the  loss  of  a  small  sum  in  interest 


Loans  105 

and  the  danger  of  committing  the  public  credit  by  a 
permature  operation. 

The  second  case  of  delay  relates  to  the  second  loan. 
It  was  occasioned  by  a  determination  to  suspend  the 
orders  for  its  application  till  information  was  received 
of  its  having  been  contracted  for. 

One  motive  to  this  determination  has  been  already 
intimated — namely,  the  yet  untried  and  immature 
state  of  our  fiscal  arrangements.  The  general  reason 
ing  on  this  head  was  strengthened  by  an  occurrence 
altogether  unlocked  for,  which  disclosed  itself  on  the 
23d  of  August,  1790,  eleven  days  after  the  rising  of 
Congress — an  occurrence  which  they  had  not  con 
templated  in  their  pecuniary  dispositions.  I  allude 
to  the  commencement  of  an  Indian  war,  which  was 
announced  in  a  letter  from  Governor  St.  Clair,  dated 
on  the  above-mentioned  day,  the  progressive  extent 
and  consequences  of  which  could,  of  course,  not  be 
foreseen.  Under  such  circumstances,  I  judged  it  for 
the  public  interest  and  safety  to  hold  the  resource 
which  the  prospect  of  a  loan  presented  under  the 
power  of  the  Treasury  till  advice  should  be  received 
of  the  actual  institution  of  the  loan,  with  intention 
then  to  dispose  of  it  as  should  appear  advisable  under 
a  better-matured  view  of  our  pecuniary  situation  and 
prospects. 

Hence  the  delay  which  attended  the  application  of 
the  second  loan;  the  first,  in  fact,  that  originated 
subsequent  to  the  laws  for  borrowing.  But  after 
advice  had  been  received  of  its  having  been  set  on 
foot,  no  time  was  lost  in  converting  it  with  due  de 
spatch  to  its  proper  uses.  There  was  only  not  an 


io6  Alexander  Hamilton 

anticipation  of  its  application.  As  early  as  May 
24th,  1791,  I  wrote  a  letter  to  Mr.  Short  (a  copy  of 
which  is  in  the  possession  of  the  House) ,  empowering 
him  to  apply  the  proceeds  of  all  future  loans,  as  they 
should  accrue,  in  payments  to  France,  except  as  to 
such  sums  as  therein  were,  or  afterward  should  be, 
previously  and  specially  reserved.  This  arrangement 
was  calculated  to  obviate  the  inconvenience  of  leav 
ing  the  proceeds  of  the  loans  for  any  considerable 
time  unemployed.  At  the  period  of  making  it,  and 
not  sooner,  the  public  prospects  appeared  to  me 
sufficiently  unfolded  to  render  a  general  and  per 
manent  disposition  free  from  hazard.  This  instruc 
tion  preceded,  in  due  season,  all  the  loans  subsequent 
to  that  of  March,  1791. 

Whatever  delay,  therefore,  may  have  attended  suc 
ceeding  investments  for  paying  the  French  debt,  is 
not  attributable  to  this  Department;  and  I  think  it 
will  not  appear  that  any  has  been  incurred  in  respect 
to  the  sums  which  were  destined  for  the  public  service 
here.  In  judging  of  this  point,  it  will  be  proper  to 
observe  that  a  latitude  of  six  months  for  making  their 
payments  has  been  reserved  to  the  money-lenders, 
though  with  liberty  to  make  them  earlier.  It  was, 
however,  necessary  for  the  Treasury  to  regulate  its 
bills  according  to  the  possible  delay,  lest  they  should 
not  meet  adequate  funds.  The  general  policy 
adopted  was  to  let  them  fall  upon  the  rear  of  each 
loan,  this  giving  a  freer  course  for  early  payments  to 
France,  and  best  conciliating  a  certainty  of  funds  for 
answering  the  bills  with  as  little  double  interest  as 
possible. 


Loans  107 

It  will  appear  that,  notwithstanding  the  arrange 
ment  which  was  made,  a  considerable  time  intervened 
between  the  two  last  payments  to  France,  while  there 
were  funds  in  hand  waiting  for  employment.  It  may 
be  expected  that  the  causes  of  this  procrastination, 
though,  as  I  have  said,  not  imputable  to  this  Depart 
ment,  should  be  unfolded  to  the  House.  Particular 
circumstances,  however,  induce  me  to  confine  myself 
to  stating  generally  that  the  delay  proceeded,  in  the 
first  place,  from  an  expectation  given  to  Mr.  Short, 
and  kept  up,  from  time  to  time,  by  the  French  Minis 
ter  of  Marine,  that  a  plan  would  be  adopted,  to  which 
a  decree  of  the  National  Assembly  was  requisite,  for 
converting  a  large  sum  into  supplies  for  St.  Domingo ; 
which  Mr.  Short  concluded  justly  must  come  out  of 
the  foreign  fund,  and  consequently  suspended  its  ap 
plication  in  Europe.  In  the  second  place,  from  a 
desire  to  settle,  previously  to  further  payments,  a 
definite  rule,  by  which  the  moneys  paid  should  be 
liquidated  and  credited  to  the  United  States. 

Both  the  one  and  the  other  appear  to  have  been 
procrastinated  from  period  to  period,  by  the  dis 
ordered  state  of  French  affairs,  and  to  have  finally 
issued  contrary  to  expectation.  It  would  be  an  un 
necessary  commitment  of  my  opinion  to  declare  how 
far  the  delay  appears  to  me  to  have  been  justified  by 
the  causes;  but,  being  led  by  the  occasion  to  take 
notice  of  it,  I  think  it  improper  to  send  it  abroad, 
liable,  perhaps,  to  misconstruction,  without  observ 
ing  that  the  inducements  appear  to  me  to  have  been 
weighty ;  that  the  delays  naturally  grew  out  of  the 
circumstances ;  and  that  I  am  entirely  pursuaded  of 


io8  Alexander  Hamilton 

the  goodness  of  the  motives  which  governed.  The 
correspondence  before  the  Senate  contains  the  par 
ticulars  of  the  transaction. 

Having  pointed  out  the  instances  of  material  delay 
which  happened,  and  the  causes  of  them,  it  remains 
to  state  what  circumstances  there  are  to  counter 
balance  the  loss  on  that  account. 

These  circumstances  are  of  two  kinds : 

1.  Gain  by  exchange  in  the  sale  of  the  bills  drawn 
by  the  Treasury,  and  upon  the  higher  rate  of  interest 
on  the  credits  which  were  given  for  those  bills,  than 
was  payable  on  the  fund  upon  which  they  were 
drawn. 

2.  Gain  by  exchange  on  the  payments  to  France. 
According  to  my  calculation,  founded  on  the  best 

information  extant,  the  real  par  of  metals,  between 
the  United  States  and  Amsterdam,  makes  a  current 
guilder  equal  to  35  3%  ninetieths  of  a  dollar.  The 
lowest  rate  which  has  been  obtained  for  the  bills  has 
been  36  ^  ninetieths,  with  an  allowance  of  sixty 
days'  credit,  without  interest.  Making  a  deduction 
for  the  interest,  the  bills  were  still  sold  above  the  true 
par.  In  some  instances,  they  have  been  sold  as  high 
as  forty  cents  and  seven  mills  per  guilder,  with  in 
terest  for  the  whole  term  of  the  credit  given. 

The  rate  of  interest,  for  the  credits  allowed  upon 
the  bills,  was  six  per  cent.;  the  mean  interest  paid 
upon  the  fund,  five  per  cent.;  producing,  conse 
quently,  a  gain  of  one  per  cent. 

With  regard  to  the  payments  to  France,  if  the 
current  rate  of  exchange  between  Paris  and  Amster 
dam,  at  the  moment  of  each  remittance  or  payment 


Loans  109 

were  to  govern,  a  large  profit  would  result  to  the 
United  States;  but  certain  equitable  considerations 
will  produce  deductions,  which  will  greatly  lessen 
this  advantage;  yet,  making  a  liberal  allowance  for 
them,  there  is  ground  to  calculate  that  a  saving 
may  be  made  in  this  particular,  more  than  sufficient 
to  indemnify  for  the  loss  of  interest.  Hence  any 
positive  advantage  which  will  have  been  other 
wise  gained  will  probably  be  undiminished  by  that 
circumstance. 

I  proceed,  in  the  next  place,  to  state  the  views 
which  prevailed,  respecting  the  sums  that  have  been 
from  time  to  time  drawn  for,  the  purposes  they  have 
hitherto  answered,  and  the  further  advantages  to  be 
expected  from  the  measure. 

The  direct  object  of  all  the  sums  drawn  for,  prior 
to  July,  1792,  was  the  purchase  of  the  debt.  A  col 
lateral  consideration,  which  operated  in  the  first 
stages  of  drawing,  has  also  been  mentioned.  It  has 
likewise  been  stated  that  the  early  purchases  of  the 
debt  are  to  be  ascribed  to  the  instrumentality  of  the 
fund  derived  from  the  loans.  This  idea  shall  now 
be  explained. 

Two  mistakes  appear  to  have  influenced  the  im 
pressions  which  have  been  entertained  in  relation, 
directly  or  indirectly,  to  this  subject.  First,  it  seems 
to  have  been  all  along  forgotten  that  a  considerable 
part  of  the  duties  is  always  outstanding,  on  account 
of  the  credits  which  are  given ;  whence  the  assertion 
that  the  sinking  fund  has  continually  overflowed 
from  domestic  resources.  Second,  it  seems  to  have 
been  taken  for  granted  that  the  proceeds  of  the  loans 


i  io  Alexander  Hamilton 

have  remained  apart,  distinct  from  the  mass  of  the 
money  in  the  Treasury;  while,  in  truth,  the  course 
of  the  business  has  been  to  turn  them  over  to  the 
Treasurer  by  warrants  as  they  have  been  received, 
so  as  to  form  a  part  of  the  aggregate,  from  time  to 
time,  appearing  in  his  hands  and  in  his  accounts. 
The  banks  have  been  the  agents  employed  for  sell 
ing  the  bills.  Sometimes  warrants  on  account  have 
issued  upon  them  for  the  sums  accruing  from  the 
sales;  at  other  times  the  warrants  have  been  de 
ferred  till  the  whole  proceeds  of  any  parcel  have  been 
received,  and  the  accounts  of  the  bank  settled  at  the 
Treasury ;  as  the  state  of  the  Treasury  has  happened 
to  render  the  one  or  the  other  more  convenient. 

The  banks  of  North  America  and  New  York  were 
the  agents  for  the  sale  of  all  the  bills  which  were  sold 
prior  to  April,  1792,  amounting  to  1,006,526  dollars 
and  36  cents.  Of  this  sum,  361,391  dollars  and  34 
cents  were  passed  over  to  the  Treasury  in  1791; 
327,136  dollars  and  22  cents  in  March,  1792;  and 
140,000  dollars  in  June  following;  the  residue  having 
remained,  as  heretofore  stated,  in  deposit  with  the 
Bank  of  North  America,  upon  a  special  considera 
tion.  This  is  exclusive  of  certain  bills  furnished  for 
the  use  of  the  Department  of  State,  amounting  to 
78,766  dollars  and  67  cents. 

The  remainder  of  the  bills  which  have  been  sold, 
beginning  in  April,  1792,  were  sold  by  the  Bank  of 
the  United  States,  and  its  branches  at  New  York  and 
Baltimore.  The  accounts  of  the  sales  had  just  been 
made  out  for  settlement  when  the  present  inquiry 
began,  but  warrants  had  not  yet  issued  for  placing 


Loans  1 1 1 

the  proceeds  in  the  Treasury.  It  will  be  remarked 
that,  from  the  terms  of  credit  allowed,  they  only 
began  to  be  receivable  in  October  last,  the  26th  day 
of  which  month  the  first  return  made  by  the  bank 
shows  a  sum  of  127,225  dollars  and  53  cents  received, 
and  that  the  collection  had  not  been  completed  when 
the  accounts  of  the  sales  were  rendered. 

There  are  different  views  of  the  subject  which  will 
enable  the  House  to  perceive  that  the  possession  of 
the  fund  in  question  was  necessary  to  enable  the 
Treasury  to  furnish  the  means  of  making  all  the 
purchases  which  were  made  prior  to  July,  1792. 

It  is  true  that  there  was  a  surplus  of  revenue  to 
the  end  of  the  year  1790,  equal  to  1,374,656  dollars 
and  40  cents,  which  was  appropriated  to  purchases 
of  the  debt;  and,  from  the  credits  then  given  upon 
the  duties,  this  surplus  would  naturally  come  into 
the  Treasury  in  the  course  of  the  year  1791. 

But  the  Legislature,  foreseeing  that  the  revenue  of 
1791,  from  the  same  cause,  could  not  actually  be  in 
the  Treasury  within  that  year,  to  face  the  appropria 
tions  upon  it  (which,  it  is  to  be  observed,  were  nearly 
commensurate  with  the  fund),  inserted  a  clause  in 
the  law  appropriating  the  surplus  of  1790  to  the 
purchase  of  the  debt,  which  authorized  a  reserv 
ation  of  so  much  of  that  surplus  as  might  be 
necessary  to  make  the  payments  of  interest  during 
1791,  in  cases  of  a  deficiency  in  the  receipts  into  the 
Treasury,  on  account  of  the  current  revenue  of  the 
year. 

It  will  appear  to  the  House,  upon  a  recurrence  to 
the  Treasurer's  quarterly  account,  ending  the  3oth 


i 1 2  Alexander  Hamilton 

of  September,  1791,  that  the  balance  of  cash  then  on 
hand  was  662,233  dollars  and  99  cents. 

At  that  time  there  had  been  paid  into  the  Treas 
ury,  upon  warrants,  from  the  proceeds  of  the  bills 
drawn  upon  the  foreign  fund,  361,391  dollars  and  34 
cents;  consequently  the  balance  of  cash,  had  it  not 
been  for  that  auxiliary,  would  have  been  only 
300,842  dollars  and  65  cents,  considering  the  whole 
balance  in  the  Treasury  as  representing  an  equal 
sum  of  the  proceeds  of  the  bills. 

Even  in  a  time  of  complete  peace,  in  a  country 
where  a  small  extent  of  moneyed  capital  forbids  a 
reliance  upon  large  pecuniary  aids  to  be  suddenly 
obtained,  a  prudent  administrator  of  the  finances 
could  not  feel  entirely  at  ease  with  a  less  sum,  at  all 
times  in  the  certain  command  of  the  Treasury,  than 
500,000  dollars,  for  meeting  current  demand  and 
extra  exigencies,  which,  in  the  affairs  of  a  nation,  are 
every  moment  to  be  expected.  But,  with  a  war 
actually  on  hand,  and  a  possibility  of  its  extension 
to  a  more  serious  length,  he  would  be  inexcusable  in 
leaving  himself  with  a  less  sum  at  command,  unless 
from  an  impracticability  of  doing  otherwise.  It 
would  be  always  his  duty  to  combine  two  considera 
tions — the  chance  of  extra  calls  for  money,  and  a 
possibility  of  some  failure  in  the  receipts  which  were 
expected.  Derangements  of  various  kinds  may  hap 
pen  in  the  commercial  circle,  capable  of  interrupting, 
for  a  time,  the  punctual  course  of  payments  to  the 
Treasury.  It  is  necessary,  to  a  certain  extent,  to  be 
prepared  for  such  casualties. 

But  during  the  year   1791   there  was  a  circum- 


Loans  113 

stance  which  operated  as  an  additional  reason  for 
keeping  a  respectable  sum  always  on  hand.  The 
loans  of  the  domestic  debt  were  going  on  till  the  last 
of  September  of  that  year;  while,  at  the  same  time, 
the  interest  was  in  a  course  of  payment.  It  was, 
therefore,  always  uncertain  what  sum  would  be  pay 
able  at  the  end  of  a  quarter,  this  depending  on  the 
eagerness  or  backwardness  of  the  public  creditors  in 
bringing  forward  their  subscriptions  or  their  claims 
as  non-subscribers.  The  omissions  at  the  end  of  a 
preceding  quarter  might  be  expected  to  fall  upon  a 
subsequent  one ;  and  it  was  necessary  to  be  prepared 
for  that  possibility;  of  course,  to  keep  in  hand  a 
larger  fund  for  contingent  demands.  This  necessity 
extended  to  the  termination  of  the  period  for  receiv 
ing  subscriptions;  because  the  Treasury  was  to  be 
prepared  on  the  supposition  that  the  whole  of  the 
domestic  debt  would  then  be  in  a  state  to  receive 
interest,  either  as  subscribed  or  unsubscribed  But 
this  did  not,  in  fact,  happen.  A  part  of  the  sums 
which  were  presented  were  crowded  into  the  last 
days  of  the  quarter,  and  were  too  late  for  a  dividend. 
A  considerable  sum  remained  ultimately  in  a  form 
which,  according  to  the  terms  of  the  provision,  did 
not  entitle  it  to  interest,  either  as  subscribed  or  as 
unsubscribed  debt. 

Hence  the  cash  in  the  Treasury  on  the  ist  of  October, 
1791,  was  by  a  considerable  sum  greater  than  was  to 
have  been  counted  upon,  orthanmight  have  happened. 

The  conclusion  which  results  from  the  foregoing 
observations  is  this:  that  the  purchases  which  pre 
ceded  the  ist  of  October,  1791,  and  which  amounted 

VOL.  III.— 8. 


ii4  Alexander  Hamilton 

to  699,984  dollars  and  23  cents  in  specie,  could  not 
have  been  hazarded,  but  for  the  aid  of  the  sums 
which  had  actually  accrued  from  the  proceeds  of  the 
bills  and  the  expectation  of  those  which  were  to 
accrue  from  the  yet  uncollected  proceeds  of  others. 

Had  it  not  been  for  this  aid,  the  Treasury  would 
have  been  left  more  bare  than  was  consistent  with 
the  security  of  public  credit  and  the  certain  execu 
tion  of  the  public  service. 

There  is,  however,  a  later  period  in  the  state  of 
the  Treasury,  which  will  more  completely  illustrate 
the  idea  intended  to  be  established.  This  is  the  2d  of 
July,  1792. 

On  that  day  the  balance  of  cash  in  the  Treasury, 
comprehending  the  deposits  in  all  the  banks,  and 
including  a  sum  of  200,000  dollars  received  on  loan 
of  the  Bank  of  the  United  States,  together  with  a 
sum  of  220,900  dollars  in  bills  drawn  upon  domestic 
funds,  the  proceeds  of  which  had  not  been  received, 
was  623,133  dollars  and  61  cents. 

Prior  to  this  period  a  further  sum  of  545,902  dol 
lars  and  89  cents,  arising  from  the  sales  of  foreign 
bills,  had  been  placed  in  the  Treasury  by  warrants, 
making,  with  the  former  sums  placed  there  from  the 
same  source,  907,294  dollars  and  23  cents. 

Had  it  not  been  for  this  auxiliary  and  that  of  the 
loan  from  the  bank,  the  Treasury  would  then  have 
been  in  arrear  484,160  dollars  and  62  cents.  It, 
therefore,  necessarily  follows  that  for  the  purchases 
to  that  period,  which  amounted  in  specie  to  942,672 
dollars  and  54  cents,  at  least  484,160  dollars  and  62 
cents  must  have  come  from  the  foreign  fund. 


Loans  1 1 5 

But  when  it  is  considered,  for  the  reasons  which 
have  been  stated,  and  which  will  hereafter  be  forti 
fied  by  others,  tending,  as  I  conceive,  to  give  them 
conclusive  force,  that  the  sum  in  the  Treasury  at 
the  period  in  question  was  barely  what  ought  to  have 
been  there  for  safety  and  for  a  due  supply  of  current 
demands,  it  will  follow  that  the  whole,  or  nearly  the 
whole,  of  the  purchases  which  were  made  previous 
to  July,  1792,  were  made  by  the  means  or  instru 
mentality  of  the  foreign  fund. 

A  similar  view,  extended  to  the  subsequent  quar 
ter,  will  exhibit  this  point  in  a  still  clearer  light.  The 
balance  then  in  the  Treasury,  including  a  further 
loan  from  the  bank  of  100,000  dollars,  was  only 
420,914  dollars  and  51  cents. 

What,  then,  it  may  be  asked,  became  of  the  sur 
plus  revenue  to  the  end  of  the  year  1790?  what  was 
the  office  performed  by  that  fund  during  the  period 
in  question? 

The  answer  is  that  it  served  exactly  the  purpose 
which  was  anticipated  by  the  Legislature.  It  came 
in  aid  of  the  current  receipts  for  satisfying  the  cur 
rent  expenditures  of  1791,  with  particular  reference 
to  the  interest  of  the  debt.  This  will  easily  be  com 
prehended  when  it  is  recollected  that  the  appropria 
tions  made  during  1791  upon  the  revenues  of  that 
year,  and  some  small  surpluses  of  antecedent  appro 
priations,  amounted  to  3,637,058  dollars  and  34 
cents ;  that  the  revenues  themselves  amounted  to  no 
more  than  3,553,195  dollars  and  18  cents;  and  that, 
at  the  end  of  1791,  there  were  outstanding,  in  bonds 
for  the  duties  on  imports,  besides  the  chief  part  of 


n6  Alexander  Hamilton 

the  proceeds  of  the  duties  on  spirits  distilled  within 
the  United  States,  then  also  uncollected,  1,828,269 
dollars  and  28  cents. 

On  this  point,  likewise,  of  the  surplus  of  revenue 
to  the  end  of  1790,  it  is  presumable  a  misappre 
hension  has  been  entertained.  It  seems  to  have 
been  supposed  that  that  surplus,  as  well  as  the 
proceeds  of  the  foreign  fund,  have  been  kept  sep 
arate  and  distinct  from  the  common  mass  of  the 
moneys  appearing  from  time  to  time  to  be  in  the 
Treasury. 

It  has  been  already  observed  that  this  was  not  the 
case  with  regard  to  the  foreign  fund.  It  is  now 
proper  to  add  that  it  has  not  been  the  case  either 
with  regard  to  the  surplus  question.  That  surplus, 
as  received  by  the  collectors  of  the  customs,  has  regu 
larly  passed  into  the  Treasury,  and  appears  in  the 
quarterly  accounts  of  the  Treasurer  for  the  periods 
to  which  they  relate. 

It  is  the  course  of  the  Treasury,  resulting  from  the 
constitution  of  the  Department,  for  all  moneys,  from 
whatever  source,  to  be  brought  into  it,  to  constitute 
an  aggregate,  subject  to  the  dispositions  prescribed 
by  law.  The  moneys  to  be  employed  in  the  sinking 
fund  have  consequently  only  been  separated,  as 
they  have  been  called  for,  for  actual  investment. 
The  only  exception  to  this  relates  to  that  part  of  the 
sinking  fund  which  is  created  by  the  interest  of  the 
debt  purchased.  This  has  been  included  in  the  quar 
terly  dividends,  and  covered  by  the  warrants  in 
favor  of  the  cashiers  of  the  banks  for  paying  those 
dividends,  after  which  they  have  passed  into  a  dis- 


Loans  1 1 7 

tinct  account  in  the  books  of  the  bank  opened  with 
Samuel  Meredith  as  agent  to  the  commissioners  of 
the  sinking  fund. 

To  the  foregoing  representation  it  may  seem  an 
objection  that  the  purchases  to  the  end  of  1791 
appear  to  have  been  carried  to  the  account  of  the 
surplus  at  the  end  of  1790. 

The  ultimate  form  which  it  has  been  judged  con 
venient  to  give  to  the  transaction  in  the  accounts  of 
the  Treasury  cannot  change  what  was  truly  the 
course  of  facts.  The  proceeds  of  the  above-men 
tioned  surplus  and  of  the  foreign  loans  formed  to 
gether  the  fund  for  purchases.  In  the  accounts  of 
the  Treasury  the  thing  was  susceptible  of  various 
modifications  at  pleasure.  The  two  parts  of  the 
fund  might  have  been  united  in  one  account,  or 
divided  into  distinct  accounts.  Being  separated, 
moneys  issued  for  purchases  might  have  been  legally 
carried  to  either  of  them. 

It  was  judged  most  advisable  in  the  forms  of  the 
Treasury  to  place  the  purchases  to  the  end  of  1791 
to  the  account  of  the  domestic  fund,  because  it  was 
calculated  to  give  greater  latitude  and  energy  to  the 
sinking  fund.  Had  not  this  course  been  pursued 
the  business  would  have  taken  the  following  shape: 
the  foreign  fund,  to  the  extent  of  the  purchases, 
would  have  been  exhausted;  the  whole,  or  the 
greater  part  of  the  surplus  of  1790,  would  have  con 
tinued  wrapt  up  in  the  expenditure  of  1791,  not 
liable  to  be  liberated  till  the  receipts  into  the  Treasury 
should  yield  a  correspondent  surplus  beyond  the 
actual  disbursements — which  could  not  have  been 


u8  Alexander  Hamilton 

the  case  while  the  war  with  the  Indians  continues  to 
call  for  extraordinary  expenditures. 

From  the  form  into  which  the  thing  has  been 
thrown,  the  foreign  fund  has  been  set  free  to  be 
applied  to  further  purchases;  and  a  necessity  pro 
duced  of  anticipating  the  outstanding  duties  by  tem 
porary  loans  for  the  current  service. 

I  trust  there  can  be  no  doubt  that  the  course  pur 
sued  was  regular  and  within  the  discretion  of  the 
Department.  I  hope,  also,  that  it  will  appear  to  the 
House  to  have  been  the  most  eligible.  The  expedi 
ency  of  giving  the  earliest  and  greatest  possible 
extent  and  activity  to  whatever  concerns  the  sink 
ing  fund  will,  it  is  presumed,  unite  all  opinions. 

What  has  been  said  hitherto  respecting  the  em 
ployment  of  the  foreign  fund  is  applicable  only  to 
that  part  of  it  which  was  drawn  for  prior  to  April, 
1792;  the  residue  standing  in  a  different  situation, 
and  requiring  a  separate  examination. 

From  the  statement  which  has  been  given,  it  may 
be  perceived  that  the  fund  in  question  has  neither 
been  idle  nor  useless.  A  confirmation  of  this  will  be 
found  in  the  following  details: 

The  whole  sum  successively  received  on  account  of 
Amsterdam  bills,  up  to  the  i;th  of  August,  1791, 
was  361,391  dollars  and  34  cents.  The  amount  of 
the  moneys  invested  in  purchases  prior  to  that  day 
was  350,000  dollars,  chiefly  by  anticipation  of  those 
receipts. 

The  whole  sum  successively  received  on  account  of 
Amsterdam  bills,  from  August  17,  1791,  to  March  i, 
1792,  was  408,722  dollars  and  6 9  cents.  The  amount 


Loans  119 

of  the  moneys  invested  in  purchases  between  those 
periods  was  349,984  dollars  and  23  cents,  chiefly  in 
the  month  of  September,  and  by  anticipation  of 
those  receipts. 

The  whole  sum  successively  received  on  account  of 
Amsterdam  bills,  subsequent  to  the  ist  of  March, 
and  prior  to  July,  1792,  was  235,412  dollars  and  33 
cents.  The  amount  of  the  moneys  invested  in  pur 
chases  between  those  periods  was  242,688  dollars 
and  31  cents. 

It  was  stated  in  my  first  letter,  that  177,998  dol 
lars  and  80  cents  of  the  proceeds  of  the  foreign  bills 
were  left  in  deposit  with  the  Bank  of  North  America ; 
and  in  a  note  upon  statement  B,  accompanying  that 
letter,  the  occasion  of  it  was  shown  to  be  an  advance 
without  interest,  made  by  that  bank,  for  the  use  of 
the  Department  of  War;  which  could  not  yet  be 
covered,  in  consequence  of  a  doubt  still  remaining, 
whether  the  fund  appropriated  for  satisfying  that 
object  was  adequate  to  it — the  sufficiency  of  that 
fund  depending  in  part  on  certain  unexpended  re 
sidues  of  antecedent  appropriations,  which  it  was 
expected  would  not  be  finally  necessary  for  satisfy 
ing  the  purposes  of  those  appropriations. 

It  is  to  be  remarked,  that  the  delay  of  the  employ 
ment  of  this  part  of  the  proceeds  of  the  foreign  fund 
has  been  compensated  by  a  saving  of  interest  on  the 
sum  advanced  by  the  bank,  which  otherwise  must 
have  been  procured  upon  a  loan  with  an  allowance 
of  interest,  probably  at  the  time  of  the  advance,  at  a 
rate  of  six  per  cent. ;  so  that,  even  in  this  particular, 
the  fund,  though  temporarily  suspended  from  its 


120  Alexander  Hamilton 

destination,  has  not  been  idle  or  unproductive.  I 
reserve  for  another  place  some  additional  observa 
tions  and  statements,  which  will  be  calculated  to 
shew  that  opportunities  of  investing  the  moneys  at 
any  time  on  hand,  applicable  to  purchases  of  the 
debt,  were  not  suffered  to  pass  unimproved,  and  that 
as  much  in  this  respect  was  done  as  the  state  of  the 
Treasury  and  the  state  of  the  market  would  permit. 

It  has  been  said,  that  a  distinct  examination  would 
be  proper  with  regard  to  the  bills  which  have  been 
drawn  upon  the  foreign  fund  subsequent  to  March, 
1792.  I  proceed  now  to  this  examination. 

The  expediency  of  what  has  been,  in  this  respect, 
done,  seems  to  have  been  called  in  question,  under  a 
suggestion,  that  an  application  of  the  fund  to  pur 
chases  had  ceased  to  be  advantageous. 

The  drawing  of  these  bills  has  been  at  different 
periods  influenced  by  various  considerations.  A 
leading  motive  was  always  the  purchase  of  the  debt. 
And  a  correct  view  of  the  subject  will,  I  doubt  not, 
satisfy  the  House,  that  the  measure  was  recom 
mended  by  an  adequate  prospect  of  advantage. 

It  is  to  be  observed,  that  all  these  drafts  were  pre 
dicated  upon  the  two  four-per-cent.  loans ;  being,  as 
already  stated,  real  4^-per-cent.  loans. 

There  was  good  ground  to  presume,  that  oppor 
tunities  would  be  found  of  investing  the  moneys 
drawn  for  in  purchases  which  would  yield  at  least 
five  per  cent,  with  a  possibility  of  doing  still  better. 
The  difference  of  \  per  cent,  was  alone  an  object  of 
importance;  but  it  would  be  coupled  with  the  fur 
ther  benefit  of  reducing  a  principal  sum  materially 


Loans  1 2 1 

exceeding  the  sum  invested.  When  the  three  per 
cents  are  purchased  at  1 25.  in  the  pound,  there  is  not 
only  a  redemption  of  an  annuity  of  five  per  cent,  but 
a  sinking  of  a  capital  of  205.  for  125.  And  though 
this  might  not  be  material,  if  the  market  rate  of 
interest  should  never  fall  below  five,  because  in  that 
case  the  three  per  cents  might  always  be  purchased 
at  the  same  rate;  yet  if  it  should  at  any  time  hap 
pen,  that  interest  fell  below  five,  it  would  be  a  gain 
to  the  Government  to  have  purchased  at  five,  in 
exact  proportion  to  the  difference  between  five  and 
the  then  market  rate.  Add  to  this,  that  the  three 
per  cents  have  generally  a  value  in  the  market  more 
than  proportioned  to  the  income  they  produce, 
which  arises  from  the  capacity  of  the  capital  to  ap 
preciate  even  to  par.  These  observations  are  also 
for  the  most  part  applicable  to  the  deferred,  with 
this  circumstance  in  addition,  that,  when  interest 
begins  to  be  payable  on  that  species  of  stock,  the 
money  invested,  and  which,  in  the  meantime,  would 
have  produced  five,  would  then  begin  to  produce  to 
the  Government  six  per  cent.,  with  the  advantage  of 
having  anticipated  the  redemption  of  a  species  of 
stock  of  right  only  gradually  redeemable.  Combin 
ing  these  considerations,  it  appears  to  be  clearly  and 
even  eminently  for  the  interest  of  the  Government 
to  purchase  within  the  limit  suggested,  with  a  fund 
which  does  not  cost  more  than  4^  per  cent. 

That  this  was  the  view  of  the  subject  which  gov 
erned,  is  deducible  not  only  from  the  circumstances 
of  the  fact,  but  from  my  letter  of  the  2d  of  April, 
1792,  to  Mr.  Short,  announcing  my  intention  to  draw, 


122  Alexander  Hamilton 

in  which  I  assign  as  the  ground  of  that  intention, 
"  that  I  considered  it  for  the  interest  of  the  United 
States  to  prosecute  purchases  of  the  public  debt  with 
moneys  borrowed  on  the  terms  of  the  last  loan," 
meaning  the  loan  of  the  ist  of  January,  1792,  at 
four  per  cent. 

If  the  event  be  taken  as  a  criterion,  the  anticipa 
tion  will  be  more  than  justified,  the  present  junc 
ture  offering  an  opportunity  for  purchases  peculiarly 
advantageous. 

But,  without  insisting  on  a  state  of  things  occa 
sioned  by  extraordinary  circumstances,  it  was  mor 
ally  certain  that  the  common  course  of  events  would 
render  the  operation  a  beneficial  one.  And  it  would 
not  argue  peculiar  foresight,  if  a  calculation  was  even 
made  on  the  effect  which  the  situation  and  probable 
progress  of  affairs  in  Europe  might  produce  upon  our 
market.  A  pretty  general  war  there,  by  extending 
the  demand  for  money,  would  naturally  divert  from 
our  stocks  a  portion  of  what  might  otherwise  be 
employed  upon  them,  and  affect  injuriously  their 
prices.  It  is  also  a  familiar  fact  that,  during  the 
winter,  in  this  country,  there  is  always  a  scarcity  of 
money  in  the  towns — a  circumstance  calculated  to 
damp  the  prices  of  stock. 

A  consideration,  which  collaterally  influenced  the 
drawing  of  the  later  bills,  was  the  situation  of  the 
French  colony  of  St.  Domingo. 

This  not  only  produced  an  early  application  for  a 
considerable  advance,  which  was  promised,  but  it 
was  to  be  foreseen,  that  still  further  aids  would  be 
indispensable. 


Loans  123 

Indeed,  sundry  letters  from  Mr.  Short,  the  first 
dated  at  Paris,  the  28th  of  December,  1791,  an 
nounced  the  daily  probability  of  an  arrangement 
requiring  an  advance  here  of  800,000  dollars  for  the 
use  of  that  colony.  A  sum  of  4,000,000  of  livres  has 
in  fact  been  successively  stipulated  for  that  object, 
the  greatest  part  of  which  has  been  actually  furnished. 

It  is  known  that  these  supplies  could  proceed  from 
no  other  source  than  the  foreign  fund. 

The  payment  to  the  foreign  officers  of  near  200,000 
dollars,  by  which  an  interest  of  six  per  cent,  would 
be  released,  was  another  object  for  which  provision 
was  to  be  made  out  of  the  same  fund. 

These  several  purposes  conspired  with  the  object 
of  purchasing  the  debt  to  induce  the  latitude  of 
drawing  which  took  place. 

But  there  was  still  a  further  inducement  which 
came  in  aid  of  the  others.  The  time  for  reimbursing 
the  first  instalment  of  the  two  millions  of  dollars  due 
to  the  bank  was  approaching,  when,  by  positive 
stipulation,  the  Government  would  have  to  pay  two 
hundred  thousand  dollars,  for  which  there  was  no 
domestic  fund  that  could  be  spared  from  the  current 
exigencies.  I  thought  it  incumbent  upon  this  De 
partment  to  have  an  eye  to  placing  within  the  reach 
of  the  Legislature  the  means  of  fulfilling  this  en 
gagement  ;  the  object  of  which  bore  a  strict  analogy 
to  that  for  which  the  two  millions  authorized  by  the 
act  making  provision  for  the  reduction  of  the  public 
debt  were  to  be  borrowed. 

I  did  not  even  scruple  to  take  into  the  calculation, 
that  if,  from  the  extent  of  the  draughts  upon  the 


124  Alexander  Hamilton 

foreign  fund,  there  should  happen  to  be  found  on 
hand  a  larger  sum  than  was  necessary  for,  or  could 
be  advantageously  employed  towards,  the  several 
purposes  which  were  the  immediate  and  direct  ob 
jects  of  the  operation,  the  surplus  would  facilitate  to 
the  Government  a  measure  manifestly  and  unequiv 
ocally  beneficial — an  additional  payment  to  the  bank, 
on  account  of  a  debt  upon  which  an  annual  interest  of 
six  per  cent,  was  payable ;  a  measure  by  which  a  cer 
tain  saving  of  one  per  cent.,  to  the  extent  of  the  pay 
ment  that  might  be  made,  would  be  accomplished. 

The  possibility  of  this  application  of  the  fund 
afforded  a  perfect  assurance,  that  the  public  interest 
could  in  no  event  fail  to  be  promoted. 

I  felt  myself  the  more  at  liberty  to  do  it,  because 
it  did  not  interfere  with  a  complete  fulfilment  of  the 
public  engagements  in  regard  to  the  foreign  debt. 
It  could  be  done  consistently  with  a  full  reimburse 
ment  of  all  arrears  and  instalments  which  had  ac 
crued  on  account  of  that  debt. 

The  detail  which  has  been  given  comprehends  a 
full  exposition  of  the  views  and  motives  that  have 
regulated  the  conduct  of  this  Department  in  relation 
to  those  parts  of  the  proceeds  of  the  foreign  loans 
which  have  been  transferred  to  the  United  States, 
except  as  to  the  last  sum  of  1,237,500  florins,  directed 
to  be  drawn  for  on  the  3oth  of  November  last;  in 
regard  to  which,  circumstances  of  a  special  nature 
co-operated,  as  is  explained  in  a  note  upon  the  copy 
of  my  letter  of  the  26th  of  that  month  to  Mr.  Short, 
forming  a  part  of  the  communication  herewith  made 
by  order  of  the  President  of  the  United  States. 


Loans  125 

The  House  will  perceive  that  the  variety  of  matter 
comprised  in  this  letter  has  not  been  collected  and 
digested  into  its  present  form,  without  much  labor 
and  unavoidable  expense  of  time.  I  trust  they  will 
be  sensible  that  no  delay  has  been  unnecessarily  in 
curred.  It  is  certain  that  I  have  made  every  exer 
tion  in  my  power,  at  the  hazard  of  my  health,  to 
comply  with  the  requisitions  of  the  House  as  early 
as  possible.  And  it  has  even  been  done  with  more 
expedition  than  was  desirable  to  secure  the  perfect 
accuracy  of  the  communication. 

Yet  I  have  still  to  regret  that  some  part  of  the 
subject  must  remain  to  be  presented  in  a  subsequent 
letter.  To  lessen,  however,  the  inconvenience  of 
this  further  delay,  I  shall  transmit  with  the  present 
letter  the  statements  required  by  the  first  and  second 
of  the  resolutions  of  the  23d  of  January,  which  will 
be  found  in  the  schedules  herewith,  marked  Nos.  I. 
to  V. ;  those  required  by  the  last  of  the  resolutions 
having  been  already  forwarded. 

There  remain,  however,  some  particulars  to 
complete  the  information  contemplated  by  those 
resolutions,  that  must  be  reserved  for  another  com 
munication.  This  I  may  venture  to  assure  the 
House  will  not  be  deferred  beyond  the  present,  or 
at  least  the  first  day  of  the  ensuing,  week. 

With  perfect  respect,  I  have  the  honor  to  be,  sir, 
Your  most  obedient  and  most  humble  servant, 
ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

The  Honorable  the  Speaker  of  the 
House  of  Representatives. 


126  Alexander  Hamilton 

No.  I. — A  statement  of  the  appropriation  for  reducing  the  public 
debt,  constituted  by  the  act  of  Congress  passed  on  the  i2th  day  of 
August,  1790. 

No.  II. — A  statement  of  the  application  of  the  funds  drawn  on  the 
appropriation  of  the  surplus  of  duties  to  the  end  of  the  year  1790.  for 
the  reduction  of  the  public  debt. 

No.  III. — A  statement  of  the  application  of  the  fund  constituted  by 
the  act  of  Congress,  passed  on  the  8th  of  May,  1792,  for  reducing  the 
public  debt,  arising  from  the  interest  on  the  sums  of  said  debt  purchased, 
redeemed,  and  paid  into  the  Treasury  of  the  United  States. 

No.  IV. — Quarterly  statement  of  cash  in  the  hands  of  the  Treasurer 
of  the  U.  S.  for  the  year  1791. 

No.  V. — Statement  of  cash  in  the  Treasury,  during  the  year  1792, 
showing  the  balance  on  hand  half  monthly. — State  Papers,  "  Finance," 
vol.  i.,  210-214. 


Communicated  to  the  House  of  Representatives. 

TREASURY  DEPARTMENT,  February  13,  1793. 

SIR: 

In  obedience  to  an  order  of  the  President  of  the 
United  States,  founded  upon  the  requests  contained 
in  two  resolutions  of  the  House  of  Representatives 
of  the  23d  of  January  last,  I  have  the  honor  to  lay 
before  the  House— 

1.  The  several  papers  numbered  i,  2,  3,  4,  being 
copies  of  the  authorities  under  which  loans  have  been 
negotiated,  pursuant  to  the  acts  of  the  4th  and  1 2th 
of  August,  1790. 

2.  Sundry  letters,  as  per  list  at  foot,  from  the 
Secretary  of  the  Treasury  to  William  Short,  Esq., 
and  to  Wilhem  and  J.  Willink,  N.  and  J.  Van  Stap- 
horst  and  Hubbard,  being  copies  of  the  authorities 
respecting  the  application  of  the  moneys  borrowed. 

3.  Statement  A,  showing  the  names  of  the  persons 
by  whom,  and  to  whom,  the  respective  payments  of 


Loans  127 

the  French  debt  have  been  made  in  Europe,  specify 
ing  the  dates  of  the  respective  payments  and  the 
sums.  With  regard  to  the  precise  dates  of  the  re 
spective  drafts  which  may  have  been  drawn,  or 
orders  which  may  have  been  given  by  Mr.  Short  to 
our  bankers  for  making  those  payments,  they  can 
not  be  furnished,  not  being  known  at  the  Treasury. 
It  is,  however,  to  be  inferred  from  the  correspond 
ence  and  circumstances  that  they  preceded  but  a 
short  time  the  respective  payments  to  which  they 
related. 

Statement  B,  showing  by  whom  the  payments 
have  been  made,  on  account  of  the  Dutch  loans,  the 
dates,  and  the  sums.  As  to  the  persons  to  whom  the 
payments  were  made,  no  specification  is  practicable, 
these  being  the  numerous  subscribers  to  the  several 
loans,  their  agents  or  assignees.  It  has  never  been 
considered,  either  under  the  former  or  present  Gov 
ernment,  as  interesting  to  the  Treasury  to  know  who 
those  individuals  were.  Indeed,  by  the  transfers 
always  going  on,  they  are  continually  changing.  The 
demand  for  a  communication  of  their  names  would 
have  been  unprecedented,  and  the  disclosure  from 
time  to  time  would  have  been  attended  with  a  great 
deal  of  useless  but  expensive  trouble. 

The  statement  desired  in  reference  to  the  Spanish 
debt  cannot  be  furnished.  In  a  note  upon  statement 
No.  i  of  my  late  report  concerning  foreign  loans  it  is 
mentioned,  "  that  advice  had  been  received  that  the 
payment  of  this  debt  was  going  on,  though  it  had  not 
been  completed."  This  appears  by  letters  from  Mr. 
Short,  now  before  the  Senate,  dated  August  3oth  and 


128  Alexander  Hamilton 

October  gfh  and  226..  No  advice  of  the  completion 
of  the  payment  has  been  since  received.  All  that  is 
known  is  that  our  bankers  were  procuring  bills, 
under  orders  from  Mr.  Short,  for  the  purpose  of  re 
mitting  to  Spain  the  sum  necessary  to  discharge  her 
debt. 

There  will  be  seen  a  difference  in  the  statement 
now  presented  and  No.  i  of  my  late  report  concern 
ing  foreign  loans,  as  to  the  date  of  the  last  payment 
to  France.  In  one  the  Qth  of  August  is  mentioned; 
in  the  other,  the  6th  of  September.  The  fact  is  that 
it  had  its  inception  some  time  in  August,  but  was 
not  perfected  till  the  6th  of  September.  Mr.  Morris, 
who  had  been  charged  by  Mr.  Short  with  endeavor 
ing  to  adjust  with  the  French  Treasury  the  rule  by 
which  the  payments  that  had  been  and  might  be 
made  should  be  liquidated  into  livres,  having  regard 
to  certain  equitable  considerations,  made  an  arrange 
ment  with  it,  provisionally,  for  the  payment  of 
1,641,250  x  florins,  and  wrote  to  Mr.  Short  requesting 
that  he  would  direct  the  payment  to  be  completed. 
There  appear  to  have  been  two  letters  from  Mr. 
Morris  on  the  subject,  one  dated  the  6th,  the  other 
the  gth  of  August.  But  Mr.  Short,  for  reasons  which 
he  explains  in  his  correspondence,  now  before  the 
Senate,  did  not  consummate  the  payment  till  the 
6th  of  September.  One  statement  has  reference  to 
the  beginning,  the  other  to  the  conclusion,  of  the 
affair. 

I  am  instructed  by  the  President  to  observe  that 
there  are  some  circumstances  in  the  communications 

1  1,625,000  Banco. 


Loans  129 

now  made  which  would  render  a  public  perusal  of 
them  not  without  inconvenience. 

With  perfect  respect,  I  have  the  honor  to  be,  sir, 
Your  most  obedient  and  most  humble  servant, 
ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

The  Honorable  the  Speaker  of  the 
House  of  Representatives. 

No.  i 

George  Washington,  President  of  the  United  States  of 
America,  to  the  Secretary  of  the  Treasury  for  the  time 
being. 

By  virtue  of  the  several  acts,  the  one  entitled  "An  act 
making  provision  for  the  debt  of  the  United  States,"  and 
the  other  entitled  "An  act  making  provision  for  the  re 
duction  of  the  public  debt,"  I  do  hereby  authorize  and 
empower  you,  by  yourself,  or  any  other  person  or  per 
sons,  to  borrow,  on  behalf  of  the  United  States,  within 
the  said  States,  or  elsewhere,  a  sum,  or  sums,  not  ex 
ceeding,  in  the  whole,  fourteen  millions  of  dollars,  and  to 
make,  or  cause  to  be  made  for  that  purpose,  such  con 
tract,  or  contracts,  as  shall  be  necessary,  and  for  the 
interest  of  the  said  States,  subject  to  the  restrictions  and 
limitations  in  the  said  several  acts  contained;  and,  for 
so  doing,  this  shall  be  your  sufficient  warrant.  ,.;  , 

In  testimony  whereof  I  have  caused  the  seal  of  the 
United  States  to  be  hereunto  affixed. 
Given  under  my  hand,  at  the  city  of  New  York,  this 
twenty-eighth  day  of  August,  in  the  year  of  our 
Lord  one  thousand  seven  hundred  and  ninety. 

GEORGE  WASHINGTON. 

By  the  President : 

TH.  JEFFERSON. 


VOL.  HI.— 9. 


130  Alexander  Hamilton 

No.  2 

George  Washington^  President  of  the  United  States  of 
America,  to  the  Secretary  of  the  Treasury  for  the  time 
being. 

Having  thought  fit  to  commit  to  you  the  charge  of 
borrowing,  on  behalf  of  the  United  States,  a  sum,  or 
sums,  not  exceeding,  in  the  whole,  fourteen  millions  of 
dollars,  pursuant  to  the  several  acts,  the  one  entitled 
"An  act  making  provision  for  the  debt  of  the  United 
States,"  and  the  other  entitled  "An  act  making  provision 
for  the  reduction  of  the  public  debt,"  I  do  hereby  make 
known  to  you  that,  in  the  execution  of  the  said  trust, 
you  are  to  observe  and  follow  the  orders  and  directions 
following,  viz.:  Except  where  otherwise  especially  di 
rected  by  me,  you  shall  employ,  in  the  negotiation  of  any 
loan,  or  loans,  which  may  be  made  in  any  foreign  country, 
William  Short,  Esq.  You  shall  borrow,  or  cause  to  be 
borrowed,  on  the  best  terms  which  shall  be  found  prac 
ticable  (and  within  the  limitations  prescribed  by  law  as 
to  time  of  re-payment  and  rate  of  interest),  such  sum,  or 
sums,  as  shall  be  sufficient  to  discharge,  as  well  all  instal 
ments,  or  parts  of  the  principal  of  the  foreign  debt  which 
now  are  due,  or  shall  become  payable  to  the  end  of  the 
year  one  thousand  seven  hundred  and  ninety-one,  as  all 
interest  and  arrears  of  interest  which  now  are  or  shall 
become  due,  in  respect  to  the  said  debt,  to  the  same  end 
of  the  year  one  thousand  seven  hundred  and  ninety-one. 
And  you  shall  apply,  or  cause  to  be  applied,  the  moneys 
which  shall  be  so  borrowed,  with  all  convenient  despatch, 
to  the  payment  of  the  said  instalments,  and  parts  of  the 
principal  and  interest,  and  arrears  of  the  interest  of  the 
said  debt.  You  shall  not  extend  the  amount  of  the  loan 
which  you  shall  make,  or  cause  to  be  made,  beyond  the 
sum  which  shall  be  necessary  for  completing  such  pay- 


Loans  131 

ment,  unless  it  can  be  done  upon  terms  more  advant 
ageous  to  the  United  States  than  those  upon  which  the 
residue  of  the  said  debt  shall  stand  or  be.  But  if  the 
said  residue,  or  any  part  of  the  same,  can  be  paid  off  by 
new  loans,  upon  terms  of  advantage  to  the  United  States, 
you  shall  cause  such  further  loans  as  may  be  requisite 
to  that  end  to  be  made,  and  the  proceeds  thereof  to  be 
applied  accordingly.  And  for  carrying  into  effect  the 
objects  and  purposes  aforesaid,  I  do  hereby  further 
empower  you  to  make,  or  cause  to  be  made,  with 
whomsoever  it  may  concern,  such  contract  or  contracts, 
being  of  a  nature  relative  thereto,  as  shall  be  found 
needful,  and  conducive  to  the  interest  of  the  United 
States. 

If  any  negotiation  with  any  prince  or  state  to  whom 
any  part  of  the  said  debt  may  be  due  should  be  requisite, 
the  same  shall  be  carried  on  through  the  person  who,  in 
capacity  of  Minister,  Charg6  des  Affaires,  or  otherwise, 
now  is,  or  hereafter  shall  be  charged  with,  transacting 
the  affairs  of  the  United  States  with  such  prince  or  state ; 
for  which  purpose  I  shall  direct  the  Secretary  of  State, 
with  whom  you  are  in  this  behalf  to  consult  and  concert, 
to  co-operate  with  you. 

Given  under  my  hand,  at  the  city  of  New  York,  this 
twenty-eighth  day  of  August,  in  the  year  of  our 
Lord  one  thousand  seven  hundred  and  ninety. 

GEO.  WASHINGTON. 

No.  3 

To  all  to  whom  these  presents  shall  come: 

Whereas  by  an  act  passed  the  fourth  day  of 
August,  in  this  present  year,  entitled  "  An  act  mak 
ing  provision  for  the  debt  of  the  United  States,"  it 


i32  Alexander  Hamilton 

is,  among  other  things,  enacted,  that  the  President 
of  the  United  States  be  authorized  to  cause  to  be 
borrowed,  on  behalf  of  the  United  States,  a  sum,  or 
sums,  not  exceeding,  in  the  whole,  twelve  millions 
of  dollars,  and  that  so  much  of  that  sum  as  may  be 
necessary  to  the  discharge  of  the  said  arrears  and 
instalments,  and  (if  it  can  be  effected  upon  terms 
advantageous  to  the  United  States)  to  the  paying 
off  the  whole  of  the  said  foreign  debt,  be  appropriated 
solely  to  those  purposes ;  and  that  the  President  be, 
moreover,  further  authorized  to  cause  to  be  made, 
such  other  contracts  respecting  the  said  debt  as  shall 
be  found  for  the  interest  of  the  said  States:  Pro 
vided,  nevertheless,  that  no  engagement  or  contract 
shall  be  entered  into,  which  shall  preclude  the 
United  States  from  reimbursing  any  sum  or  sums 
borrowed,  within  fifteen  years  after  the  same  shall 
have  been  lent  or  advanced: 

And  whereas,  by  another  act,  passed  the  twelfth 
day  of  August,  in  the  present  year,  entitled  "  An  act 
making  provision  for  the  reduction  of  the  public 
debt,"  it  is  also,  among  other  things,  enacted,  that 
the  President  of  the  United  States  be  authorized 
to  cause  to  be  borrowed,  on  behalf  of  the  United 
States,  a  sum,  or  sums,  not  exceeding  in  the  whole 
two  millions  of  dollars,  at  an  interest  not  exceeding 
five  per  cent. : 

And  whereas,  by  virtue  of  the  said  several  acts, 
the  President  of  the  United  States  of  America  hath 
been  pleased,  by  a  certain  commission  or  warrant, 
under  his  hand,  to  authorize  and  empower  the  Sec 
retary  of  the  Treasury  for  the  time  being,  by  him- 


Loans  133 

self,  or  any  other  person  or  persons,  to  borrow,  on 
behalf  of  the  United  States,  within  the  said  States, 
or  elsewhere,  a  sum,  or  sums,  not  exceeding,  in  the 
whole,  fourteen  millions  of  dollars,  and  to  make,  or 
cause  to  be  made,  for  that  purpose,  such  contract  or 
contracts  as  shall  be  necessary,  and  for  the  interest  of 
the  said  States,  subject  to  the  restrictions  and  lim 
itations  in  the  said  several  acts  contained:  And 
whereas  Messrs.  Wilhem  and  Jan  Willink,  and  Nicho- 
laas  and  Jacob  Van  Staphorst  and  Hubbard,  have, 
by  letter,  bearing  date  the  twenty-fifth  day  of  Jan 
uary,  1790,  communicated  to  me,  that  they  have 
entered  into  a  certain  provisional  agreement,  or 
arrangement,  for  a  loan  of  three  millions  of  florins, 
for  the  use  of  the  United  States  of  America,  bearing 
an  interest  of  five  per  centum  per  annum,  and  reim 
bursable  by  yearly  instalments  of  six  hundred  thou 
sand  florins,  commencing  in  the  year  one  thousand 
eight  hundred  and  one,  and  ending  in  the  year  one 
thousand  eight  hundred  and  five:  And  whereas  it 
appears  to  me  for  the  interest  of  the  said  United 
States  to  accept  the  said  loan: 

Now,  therefore,  be  it  known:  That  I,  Alexander 
Hamilton,  Secretary  of  the  Treasury  of  the  United 
States  for  the  time  being,  by  virtue  of  the  power 
and  authority  in  me  vested,  by  the  said  President  of 
the  United  States,  and  in  his  name,  and  on  behalf  of 
the  United  States  of  America,  and  to  their  use,  do, 
by  these  presents,  accept,  agree  to,  ratify,  and  con 
firm  the  loan  aforesaid,  provisionally  undertaken 
by  the  said  Wilhem  and  Jan  Willink,  and  Nicholaas 
and  Jacob  Van  Staphorst  and  Hubbard.  And  I  do 


134  Alexander  Hamilton 

hereby  authorize  and  empower  the  said  Wilhem 
and  Jan  Willink,  and  Nicholaas  and  Jacob  Van  Stap- 
horst  and  Hubbard,  or,  in  case  of  the  death  of  any 
of  them,  the  survivors,  to  borrow,  on  behalf  of  the 
United  States,  either  by  way  of  confirmation  of  the 
said  provisional  agreement,  or  otherwise,  as  need 
may  be,  a  sum,  or  sums,  not  exceeding,  in  the  whole, 
three  millions  of  florins,  subject  to  the  restrictions 
and  limitations  in  the  said  several  acts  contained 
and  above  recited ;  and  for  that  purpose,  in  the  name 
of  the  said  President,  on  behalf  of  the  United  States 
of  America,  to  execute  such  contracts,  obligations, 
and  instruments  as  shall  be  necessary,  and  conform 
able  to  usage,  in  the  like  cases,  and  the  faith  of  the 
United  States  to  pledge  for  the  performance  of  the 
terms  thereof;  and  if  the  same  shall  be  deemed 
requisite,  to  stipulate  for  the  ratification  thereof  by 
the  President  of  the  United  States;  hereby  giving 
and  granting  to  the  said  Wilhem  and  Jan  Willink, 
and  Nicholaas  and  Jacob  Van  Staphorst  and  Hub- 
bard,  and  the  survivors  of  them,  all  my  power  and 
authority  in  the  premises,  and  ratifying,  allowing, 
and  confirming  whatsoever  they  shall  lawfully  do 
therein. 

In  testimony  whereof,  I  have  caused  the  seal  of  the 
Treasury  to  be  affixed  to  these  presents,  and 
have  hereunto  subscribed  my  hand,  the  twenty- 
eighth  day  of  August,  in  the  year  of  our  Lord 
one  thousand  seven  hundred  and  ninety. 
ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 


Loans  135 

No.  4 

To  all  to  whom  these  presents  shall  come: 

Whereas,  by  an  act  passed  the  fourth  day  of  Au 
gust,  in  this  present  year,  entitled  "  An  act  making 
provision  for  the  debt  of  the  United  States,"  it  is, 
among  other  things,  enacted,  that  the  President  of 
the  United  States  be  authorized  to  cause  to  be  bor 
rowed,  on  behalf  of  the  United  States,  a  sum,  or 
sums,  not  exceeding,  in  the  whole,  twelve  millions 
of  dollars,  and  that  so  much  of  that  sum  as  may  be 
necessary  to  the  discharge  of  the  said  arrears  and 
instalments,  and  (if  it  can  be  effected  upon  terms 
advantageous  to  the  United  States)  to  the  paying  off 
the  whole  of  the  said  foreign  debt,  be  appropriated 
solely  to  those  purposes ;  and  that  the  President  be, 
moreover,  further  authorized  to  cause  to  be  made 
such  other  contracts  respecting  the  said  debt  as 
shall  be  found  for  the  interest  of  the  said  States: 
Provided,  nevertheless,  that  no  engagement  or  con 
tract  shall  be  entered  into  which  shall  preclude  the 
United  States  from  reimbursing  any  sum  or  sums 
borrowed,  within  fifteen  years  after  the  same  shall 
have  been  lent  or  advanced: 

And  whereas,  by  another  act,  passed  the  twelfth  day 
of  August,  in  the  present  year,  entitled  "  An  act  mak 
ing  provision  for  the  reduction  of  the  public  debt, "  it 
is,  also,  among  other  things,  enacted  that  the  Presi 
dent  of  the  United  States  be  authorized  to  cause  to 
be  borrowed,  on  behalf  of  the  United  States,  a  sum,  or 
sums,  not  exceeding,  in  the  whole,  two  millions  of 
dollars,  at  an  interest  not  exceeding  five  per  cent. : 


136  Alexander  Hamilton 

And  whereas,  by  virtue  of  the  said  several  acts, 
the  President  of  the  United  States  of  America  hath 
been  pleased  by  a  certain  commission  or  warrant, 
under  his  hand,  to  authorize  and  empower  the  Secre 
tary  of  the  Treasury  for  the  time  being,  by  himself, 
or  any  other  person  or  persons,  to  borrow,  on  behalf 
of  the  United  States,  within  the  said  States,  or  else 
where,  a  sum,  or  sums,  not  exceeding,  in  the  whole, 
fourteen  millions  of  dollars,  and  to  make,  or  cause  to 
be  made,  for  that  purpose,  such  contract  or  con 
tracts  as  shall  be  necessary,  and  for  the  interest  of 
the  said  States,  subject  to  the  restrictions  and  lim 
itations  in  the  said  several  acts  contained: 

Now,  therefore,  know  ye:  That  I,  Alexander 
Hamilton,  Secretary  of  the  Treasury  of  the  United 
States  for  the  time  being,  by  virtue  of  the  said  com 
mission,  power,  or  warrant  of  the  President  of  the 
United  States  of  America,  have  authorized  and  em 
powered,  and  by  these  presents  do  authorize  and 
empower,  William  Short,  Charge'  des  Affaires  of  the 
United  States  at  the  court  of  France,  to  borrow,  on 
behalf  of  the  United  States,  in  any  part  of  Europe, 
a  sum,  or  sums,  not  exceeding,  in  the  whole,  fourteen 
millions  of  dollars,  and  to  make,  or  cause  to  be  made, 
for  that  purpose,  such  contract  or  contracts  as  shall 
be  necessary,  and  for  the  interest  of  the  said  States, 
subject  to  the  restrictions  and  limitations  in  the 
said  several  acts  contained;  and  for  so  doing  this 
shall  be  his  sufficient  warrant. 

In  testimony  whereof,  I  have  caused  the  seal  of  the 
Treasury  to  be  affixed  to  these  presents,  and 
have  hereunto  subscribed  my  hand,  the  first 


Public  Funds  137 

day  of  September,  in  the  year  of  our  Lord  one 
thousand  seven  hundred  and  ninety. 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

A. — Statement  showing  the  dates  and  sums  of  the  respective  pay 
ments  which  have  been  made  on  account  of  the  debt  due  to  France,  out 
of  the  Dutch  and  Antwerp  loans;  and  by  whom,  and  to  whom,  the 
moneys  were  remitted  or  paid. 

B. — Statement  showing  the  respective  payments  which  have  been 
made  by  William  and  John  Willink,  Nicholas  and  Jacob  Van  Staphorst 
and  Hubbard,  in  Amsterdam,  to  individuals,  upon  the  several  loans 
made  in  Holland,  on  account  of  the  United  States. 


PUBLIC    FUNDS 

Communicated  to  the  Senate,  February  14,  1793. 

TREASURY  DEPARTMENT,  February  14,  1793. 

SIR: 

I  have  the  honor  to  transmit,  herewith,  in  further 
pursuance  of  the  order  of  the  Senate  of  the  23d  of 
January  past,  three  several  statements,  marked  A, 
B,  C.' 

A  being  a  general  account  of  revenue  and  appro 
priations:  exhibiting,  on  one  side,  all  the  income  of 
the  United  States,  except  from  the  proceeds  of  loans, 
foreign  and  domestic,  to  the  end  of  the  year  1792; 
on  the  other,  the  respective  amounts  of  all  the  ap 
propriations  which  have  been  made  by  law,  to  the 
same  period. 

B  being  a  general  account  of  appropriations  and 
expenditures  to  the  same  end  of  the  year  1792. 
This  statement  takes  up  the  excess  of  the  appropria 
tions  beyond  the  expenditure,  to  the  end  of  the  year 

1  See  State  Papers,  "  Finance,"  vol.  i.,p.  218. 


138  Alexander  Hamilton 

1791,  as  contained  in  the  account  of  receipts  and 
expenditures,  reported  to  the  House  of  Representa 
tives  during  the  present  session;  and,  including  all 
the  subsequent  appropriations  and  expenditures  to 
the  end  of  1792,  shows  the  balance  unsatisfied  of 
each  head  of  appropriation. 

C  being  an  explanatory  statement,  for  the  purpose 
of  showing  a  conformity  between  the  aggregate  of 
the  balances  of  appropriations  unsatisfied,  and  the 
balance  of  the  public  income  beyond  the  public  ex 
penditure,  to  the  end  of  the  year  1792,  as  repre 
sented  in  the  statement  B,  heretofore  reported. 

It  will  be  observed,  that  the  most  considerable 
item  among  the  balances  of  appropriations  is  for 
interest  on  the  public  debt — amounting  to  one  mil 
lion  three  hundred  and  ninety-five  thousand  eight 
hundred  and  twenty-four  dollars  and  sixty-five 
cents.  This  happens  in  three  ways.  ist.  The  in 
terest  on  the  foreign  part  of  the  debt  has  been  paid 
in  Europe,  out  of  the  proceeds  of  the  loans ;  the  sum 
paid  will  consequently  require  to  be  replaced  out  of 
the  domestic  funds,  and  will  operate  as  if  an  equal 
sum  had  been  transferred  here  by  drafts.  2d.  The 
payment  of  interest  to  certain  States,  upon  the  differ 
ence  between  their  quotas  of  the  assumed  debt  and 
the  sums  subscribed  upon  the  first  loan,  has  been 
suspended,  in  consequence  of  the  opening  of  the 
second  loan,  to  avoid  a  double  payment  of  interest, 
first  to  the  States,  and  next  to  the  subscribers, 
which  might  otherwise  happen.  3d.  There  is  a  part 
of  the  public  debt  which  has  continued  in  a  form 
that  has  not  entitled  the  holders,  under  the  existing 


Loans  139 

laws,   to   receive  interest  either  as   subscribers  or 
non-subscribers. 

There  are  certain  arrears  of  interest,  on  the  part 
of  the  debt  entitled  to  interest,  which  did  not  come 
into  the  accounts  of  the  year  1792. 

This  balance  of  interest,  however,  will  be  a  real 
future  expenditure,  as,  indeed,  will  be  the  case  with 
regard  to  most  of  the  other  balances  of  appropria 
tions.  There  will  be  surpluses,  but  these  surpluses 
cannot  exceed,  if  they  equal,  the  sum  mentioned  in 
my  letter  of  the  4th  instant,  to  the  House  of  Repre 
sentatives. 

With  perfect  respect,  I  have  the  honor  to  be, 
Sir,  your  obedient  servant, 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

To  the  Vice-President  of  the  United  States  and 
President  of  the  Senate. 

A.  —  Statement  of  the  revenue  of  the  United  States,  and  appropria 
tions  charged  thereon  to  the  end  of  the  year  1792. 

B.  —  General  statement  of  the  appropriations  made  by  law,  and  of  the 
expenditures  of  the  United  States  in  relation  thereto,  from  the  first 
day  of  January  to  the  last  day  of  December,  1792. 

C.  —  Statement  exhibiting  the  debts  charged  upon  the  unexpended 
and  uncollected  income  of  the  United  States  on  the  last  day  of  the  year 


LOANS 

Communicated  to  the  House  of  Representatives,  February  20,  1793. 
TREASURY  DEPARTMENT,  February  19,  1793. 

SIR: 

The  last  letter  which  I  had  the  honor  to  address  to 
the  House  of  Representatives  contained  a  pretty  full 


H°  Alexander  Hamilton 

exposition  of  the  conduct  and  views  of  this  Depart 
ment  in  regard  to  the  foreign  loans.  There  remain, 
however,  some  incidental  topics  which  it  may  not  be 
expedient  to  pass  over  in  silence. 

In  order  to  carry  the  attention  of  the  House  imme 
diately  to  a  just  application  of  the  remarks  which 
will  be  submitted,  it  is  necessary  to  premise  that  it  is 
known  to  have  been  suggested  that  the  proceeds  of 
the  foreign  bills  drawn  for  to  this  country  had  no 
object  of  public  utility — answered  none — and  were 
calculated  merely  to  indulge  a  spirit  of  favoritism 
toward  the  Bank  of  the  United  States. 

It  has  already  been  shown,  clearly,  I  trust,  that,  but 
for  the  instrumentality  of  the  parts  of  the  loan  drawn 
for  prior  to  April,  1792,  amounting  nearly  to  one  half 
of  the  whole  sum,  the  purchases  of  the  debt  which 
were  made  to  that  time  could  not  have  been  made; 
and  that  these  purchases,  besides  being  the  object  de 
signated  by  law,  for  the  application  of  the  fund,  were 
productive  of  positive  and  important  advantages. 

How  far  the  operation  could  have  been  influenced 
by  motives  of  favor  to  the  Bank  of  the  United  States, 
the  following  facts  will  still  more  completely  decide. 

That  bank  did  not  begin  its  operations  till  the  1 2th 
of  December,  1791. 

The  banks  of  North  America  and  New  York  were 
the  agents  of  the  Treasury  for  the  sale  of  the  bills  in 
question.  They  sold  them,  collected  and,  with  the 
exception  which  will  be  presently  stated,  disbursed 
the  proceeds. 

The  receipts  on  account  of  those  bills  began  in 
March,  1791,  and  concluded  in  March,  1792. 


Loans  141 

On  the  3ist  of  December,  1791,  as  the  Treasurer's 
account  before  the  House  will  show,  the  public  cash 
was  deposited  as  follows: 

In  the  Bank  of  the  United  States       .         .  $133,000  oo 

Bank  of  North  America  .         .         .  471,972  28 

Bank  of  New  York           .         .         .  224,677  35 

Bank  of  Massachusetts    .         .         .  65,578  22 

Bank  of  Maryland   ....  50,665  29 

Bank  of  Providence         .        .        .  7,969  61 


Making,  together  .        .     $953,862  75 

There  was  then  also  some  moneys  in  the  banks  of 
North  America  and  New  York,  in  a  course  of  re 
ceipt,  which  had  not  been  passed  over  to  the  Treas 
urer;  but  all  the  public  moneys,  of  whatever  kind, 
in  the  Bank  of  the  United  States,  are  included  in  the 
above  sum  of  133,000,  which  had  arisen  from  the 
duties  on  imports  and  tonnage. 

It  appears,  then,  that,  on  the  3ist  of  December, 
1791,  no  transfer  for  the  benefit  of  the  Bank  of  the 
United  States  had  been  made ;  and  that  the  deposits 
of  the  Government  there  (exclusive  of  the  proceeds 
of  the  bills  remaining  in  the  two  banks,  of  North 
America  and  New  York)  amounted  to  little  more 
than  one  fourth  of  the  deposits  in  the  Bank  of  North 
America,  and  little  more  than  one  half  of  those  in  the 
Bank  of  New  York. 

As  late  as  the  ist  of  February,  the  State  banks 
continued  to  share  with  the  Bank  of  the  United 
States  a  large  proportion  of  the  public  deposits. 
The  state  of  the  Treasury  then  was  as  follows,  viz. : 


142  Alexander  Hamilton 

In  the  Bank  of  the  United  States       .  %  $456,278  90 

Bank  of  North  America   .        .  .  151,516  32 

Bank  of  New  York           .         .  .  128,708  21 

Bank  of  Massachusetts    .         .  .  71,215  55 

Bank  of  Maryland   ....  49,583  25 

Bank  of  Providence         .         .  .  7,969  6 1 


Making,  together  .         .     $865,271  84 

A  concentration  of  the  public  deposits  in  the  Bank 
of  the  United  States  was  a  measure  which  grew  out 
of  the  relation  between  that  establishment  and  the 
Government.  Yet,  instead  of  hastening  it  through 
favor,  it  was  resolved  to  let  it  have  a  gradual  course ; 
so  as  to  consult,  in  a  due  degree,  the  convenience  of 
the  other  banks,  and  to  effect  it  rather  by  letting  the 
public  disbursements  fall  upon  the  moneys  in  those 
banks  than  by  direct  transfer. 

But  a  state  of  things  took  place  in  the  month  of 
February,  between  the  banks  of  the  United  States 
and  North  America,  which  rendered  a  more  ex 
peditious  transfer  than  was  meditated,  for  the 
mutual  convenience  of  the  two  institutions. 

The  effect  of  this  was,  that  the  state  of  the  Treas 
ury,  on  the  ist  of  March,  stood  as  follows: 

In  the  Bank  of  the  United  States  .  .  $692,959  06 

Bank  of  Massachusetts    .  .  .  31,769  05 

Bank  of  New  York           .  .  .  32,352  52 

Bank  of  North  America  .  .  .  31,515  74 

Bank  of  Providence         .  .  .  8,404  94 

Bank  of  Maryland  .         .  .  .  34,752  85 

Making,  together  .         .     $831,754  16 


Loans  143 

But  at  this  time  there  was  in  the  Bank  of  New 
York,  from  the  proceeds  of  the  foreign  bills,  121,984 
dollars  and  71  cents,  not  transferred  to  the  account 
of  the  Treasurer. 

This  accumulation,  however,  in  the  Bank  of  the 
United  States,  was  of  very  short  duration. 

On  the  ist  of  April  ensuing,  the  state  of  the  public 
cash  was  as  follows: 

In  the  Bank  of  the  United  States  .  .  $359,643  64 

Bank  of  New  York           .  .  .  254,930  41 

Bank  of  North  America  .  .  .  31,515  74 

Bank  of  Massachusetts    .  .  .  37,712  58 

Bank  of  Providence         .  .  .  7,156  65 

Bank  of  Maryland   .        ,  .  .     .  60,418  32 


Making,  together  .        •'-$75I>377  34 

A  similar  state  of  things  lasted  to  the  ist  of  June, 
comparatively  more  disadvantageous  to  the  Bank  of 
the  United  States.  The  receipts  of  public  revenue 
continued  to  go  into  the  Bank  of  New  York  till  the 
ist  of  April,  1792,  when  a  branch  of  the  Bank  of  the 
United  States  began  to  operate  in  that  city;  which 
is  the  reason  of  the  sum  in  the  Bank  of  New  York 
bearing  so  near  a  proportion  to  that  of  the  United 
States,  and  so  far  exceeding  the  Bank  of  North 
America.  By  this  time,  also,  the  balance  of  the 
proceeds  of  foreign  bills  had  been  passed  to  the  ac 
count  of  the  Treasurer ;  yet  still  remaining  in  deposit 
in  the  Bank  of  New  York. 

These  views  of  the  state  of  the  public  cash  are 
conformable  to  the  Treasurer's  statement  of  half- 


144  Alexander  Hamilton 

monthly  balances,  accompanying  my  letter  of  the 
1 3th  instant,  No.  V. 

The  same  statement  will  show,  that  a  proportion 
of  the  public  deposits  has  continued,  since  the  ist  of 
April,  1792,  in  the  State  banks;  in  those  of  North 
America  and  New  York  down  to  the  end  of  the 
period  which  that  statement  embraces. 

From  these  details  the  following  inferences  are 
deducible. 

That,  as  far  as  any  advantages  may  have  accrued 
from  the  deposits  on  account  of  the  foreign  bills 
drawn  prior  to  April,  1792,  they  accrued  substanti 
ally  to  the  banks  of  North  America  and  New  York, 
not  to  the  Bank  of  the  United  States,  or  to  its 
branches.  That,  in  transferring  the  pecuniary  con 
cerns  of  the  Government  from  the  pre-existing  banks 
to  that  of  the  United  States  and  its  dependencies,  a 
cautious  regard  has  been  paid  to  the  convenience  of 
the  former  institutions,  and  the  reverse  of  a  policy 
unduly  solicitous  for  the  accommodation  of  the  Bank 
of  the  United  States  has  prevailed.  Indeed,  so 
much  has  this  been  the  case,  that  it  might  be  proved, 
if  it  were  proper  to  enter  into  the  proof,  that  a  criti 
cism  has  been  brought  upon  the  conduct  of  the  De 
partment,  as  consulting  less  the  accommodation  of 
the  last-mentioned  institution,  than  was  due  to  its 
relation  to  the  Government  and  to  the  services  ex 
pected  from  it. 

But  further  examination  will  demonstrate  an 
other  point ;  which  is,  that  none  of  the  establishments 
in  question  have  received  any  accommodations 
which  were  not  in  perfect  coincidence  with  the  pub- 


Loans  145 

lie  interest,  and  in  the  due  and  proper  course  of 
events. 

This  examination  will  be  directed  toward  two 
objects:  one,  the  state  of  the  Treasury  at  the  com 
mencement  of  each  quarter  during  the  years  1791 
and  1792;  the  other,  the  state  of  the  market  in  re 
gard  to  the  prices  of  stock  during  the  same  years. 

These  periods  are  selected,  because  they  afford  the 
truest  criterion  of  the  state  of  the  Treasury,  from 
time  to  time,  being  those  at  which  the  principal 
public  payments  are  made ;  and  for  which  it  is  neces 
sary  to  be  prepared  by  intermediate  accumulations. 

The  state  of  the  Treasury  at  the  periods  in  ques 
tion  was  as  follows : 

IN  THE  YEAR  1791 

January  i  .     :  ,.        »        v  .     . _  .  ,.         .  $569,886  55 

April  i  .         .         .         .|,'..     373,434  53 

July  i (  .        .     533.638  24 

October  i .    662,233  99 

IN  THE  YEAR  1792 

January  i 953,862  75 

April  i 75^377  34 

July  i  .......  623,133  61 

October  i     .         .      .  ,        ....  420,914  51 

January  i,  1793 783>2i2  37 

This  appears  from  the  statements  Nos.  4  and  5, 
forwarded  with  my  last  letter. 

The  state  of  the  stock  market,  during  the  several 
quarters  of  the  same  years,  was  as  follows : 


VOL.  III. — 10. 


146  Alexander  Hamilton 

FIRST  QUARTER  OF  1791 

Six  per  cents  from  .  .  i6s.  <)d.  to  1 75.  6d. 
Three  per  cents  from  .  .  Ss.  6d.  to  gs.  ^d. 
Deferred,  from  .  .  .  Ss.  6d.  to  gs.  4^.. 

SECOND  QUARTER   OF    1791 

Six  per  cents  from       .        .175.  to     175.       gd. 

Three  per  cents  from  .         .       95.  to     los. 

Deferred,  from    .         .         .       85.     i  id.     to       gs.       $d. 

THIRD  QUARTER  OF  1791 

Six  per  cents  from  .  .175.  lod.  to  215.  $d. 
Three  per  cents  from  .  .  gs.  gd.  to  125.  $d. 
Deferred,  from  .  .  gs.  gd.  to  125.  lod. 

As  early  as  the  6th  of  August,  the  six  per  cents  had 
a  temporary  rise  to  215.,  but  by  the  i6th  they  had 
fallen  to  205.;  on  the  2oth  they  had 'risen  to  205.  6d., 
and  were  sometimes  above  that  rate,  but  never 
lower,  during  the  rest  of  the  quarter. 

As  early  as  the  23d  of  July  the  three  per  cents  had 
reached  125.,  and  were  sometimes  higher,  but  never 
lower,  during  the  rest  of  the  quarter. 

On  the  23d  of  July  the  deferred  also  reached  125., 
and  afterwards  rose  to  1 25.  6 d. 

FOURTH  QUARTER  OF  1791 

Six  per  cents  from  .         .     205.     4^.     to     225.     $d. 

Three  per  cents  from  .  .12$.  2d.  to  135.  8d. 
Deferred,  from  .  .  .115.  Sd.  to  135.  6d. 

The  prices  were  lowest  in  the  earl}'",  and  highest  in 
the  latter,  part  of  the  quarter. 

During  the  whole  of  the  month  of  December,  the 


Loans  147 

deferred  was  at  125.  8d.  and  upwards — the  greatest 
part  of  the  time  at  135. 

FIRST  QUARTER  OF  1792 

Six  per  cents  from  .         .         .215.  to     255. 

Three  per  cents  from  .  -."  .  125.  6d.  to  155. 
Deferred,  from  .  .  .  .  12$.  to  155. 

The  low  prices  were  in  the  last  ten  days  of  March. 

SECOND  QUARTER  OF   1792 

Six  per  cents  from      ^  i;;'     .     205.  to     225.     6d. 

Three  per  cents  from     .         .125.  to     135.     gd. 

Deferred,  from-     .         .         .115.       6d.     to     135.     ^d. 

THIRD  QUARTER  OF  1792 

Six  per  cents  from         .         .215.  to     225.     $d. 

Three  per  cents  from  .  !vV?"'iraif.  4^.  to  135.  6d. 
Deferred,  from  .  t r-  .  i  i'~  j'2>.  $d.  to  135.  jd. 

FOURTH  QUARTER  OF  1792 

Six  per  cents  from  .  .  205.  2<f.  to  215.  9^. 
Three  per  cents  from  .  .125.  $d.  to  135.  6d. 
Deferred,  from  .  .  .115.  lod.  to  135.  6d. 

In  October  the  deferred  was  at  the  highest.  The 
lowest  prices  were  in  the  month  of  December. 

This  view  of  the  subject  is  derived  from  a  state 
ment  of  prices,  pursuant  to  actual  purchases  and 
sales,  furnished  by  a  dealer  of  this  city,  respectable 
for  his  intelligence  and  probity,  combined  with  the 
accounts  from  time  to  time  published  in  the  Gazette 
of  the  United  States.  The  papers  marked  (A  x.)  and 
(B  y.)  are  transmitted  for  the  more  particular  in 
formation  of  the  House  on  this  head. 


148  Alexander  Hamilton 

The  market-prices  of  stocks  no  doubt  varied  at 
other  places;  at  some  may  have  been  higher,  at 
others  lower.  At  Philadelphia,  too,  't  is  believed  that 
small  sums  were  obtainable  at  particular  periods, 
from  necessitous  individuals,  below  the  prices  in 
the  statement. 

But  there  is  good  ground  of  reliance  that  it  is  sub 
stantially  a  just  representation  of  the  state  of  the 
stock  market  during  the  periods  to  which  it  refers. 

The  state  of  the  Treasury  from  the  ist  of  January 
to  the  ist  of  October,  1791,  may  be  said  to  have  been 
at  its  proper  level,  exhibiting  none,  or  an  incon 
siderable  excess  beyond  the  sum  which  has  been 
mentioned  as  necessary  to  be  there,  and  concerning 
which  a  further  explanation  has  been  promised,  and 
will  be  given  in  the  course  of  this  letter.  The  public 
purchases  in  August  and  September,  1791,  amounted 
to  349,744  dollars  and  99  cents. 

In  the  last  quarter  of  the  year  1791,  beginning 
with  the  month  of  November,  and  the  first  quarter 
of  the  year  1792,  there  appears  to  have  been  an  ex 
cess  of  some  magnitude  in  the  Treasury,  being  from 
about  250,000  to  about  450,000  dollars.  Taking  the 
first  quarter  of  1792  as  the  truest  criterion  (which  it 
certainly  was,  because  at  the  expiration  of  that 
quarter  the  payment  of  interest  on  the  assumed  debt 
began,  and  was  to  be  provided  for),  the  real  excess 
ought  to  be  considered  as  250,000  dollars;  with  the 
addition  of  about  80,000  dollars  then  in  the  Bank  of 
North  America  from  the  proceeds  of  Amsterdam  bills, 
beyond  the  advances  of  the  bank  for  the  public  serv 
ice,  which  had  not  been  passed  into  the  Treasurer's 


Loans  149 

account.  It  is  proper  to  remark  that  the  course  of 
importations  occasions  large  receipts  in  the  latter 
part  of  each  year,  which  circumstance  contributed 
to  the  accumulation  in  question. 

From  the  last  of  November  to  about  the  2ist  of 
March  an  investment  of  the  excess  on  hand  in  pur 
chases  was  impracticable. 

To  enable  the  House  to  understand  what  is  meant 
by  saying  that  purchases  were  impracticable  during 
that  period,  it  is  necessary  to  add  that  the  prices  of 
stock  exceeded  the  limits  which  the  commissioners 
of  the  sinking  fund  had  prescribed  to  themselves. 
Indeed,  a  large  proportion  of  the  time  those  prices 
were  manifestly  artificial,  and  such  as  predicted  a 
great  fall  not  far  distant.  The  delay  incurred  was 
accordingly  well  compensated  by  the  prices  at  which 
investments  were  afterward  made. 

From  the  2ist  of  March  to  the  25th  of  April  pur 
chases  were  effected  to  the  extent  of  242,688  dollars 
and  31  cents  in  specie;  within  80,000  or  90,000 
dollars  of  what  could  have  been  spared,  consistently 
with  the  rule  which  has  been  mentioned,  as  proper 
to  regulate  the  arrangements  of  the  Treasury. 

But  two  circumstances  operated  against  a  further 
investment:  a  sudden  rise  of  prices,  and  a  state  of 
temporary  disorder  in  the  two  principal  mercantile 
scenes  of  the  country  (occasioned  by  the  excessive 
speculations  that  had  preceded),  which  admonished 
the  Treasury  to  be  cautious  in  its  disbursements. 

It  results  from  the  foregoing  view  of  the  subject 
that,  as  far  as  any  extraordinary  sum  may  appear  to 
have  remained  unemployed  in  the  banks  a  longer 


15°  Alexander  Hamilton 

term  than  was  desirable,  it  proceeded  essentially 
from  a  state  of  things  which  did  not  permit  its  em 
ployment,  and  is  in  no  degree  attributable  to  that 
spirit  of  favoritism  toward  those  establishments,  or 
any  of  them,  which  has  been  imagined  as  the  solu 
tion  of  appearances  not  rightly  understood  and  much 
overrated. 

The  only  question,  then,  of  which  the  matter  is 
susceptible,  is  this :  Was  not  the  state  of  things  that 
did  take  place  to  have  been  foreseen,  so  as  to  have 
influenced  the  drawing  for  a  proportionably  less 
sum? 

This  question  may  safely  be  answered  in  the 
negative. 

The  bills,  the  proceeds  of  which  contributed  to 
constitute  the  excess,  which  remained  unemployed 
during  the  two  quarters  were  drawn  in  May,  1791. 
In  that  month  the  highest  prices  of  stock  were  1 75. 
2d.  for  six  per  cents,  95.  2d.,  for  three  per  cents,  and 
95.  $d.  for  deferred. 

No  reasonable  anticipation,  at  this  juncture,  of 
the  progressive  rise  of  stock  could  have  carried  it  in 
so  short  a  time  to  the  height  which  it  attained,  or 
beyond  the  limits  within  which  purchases  were 
deemed  advantageous.  The  rapid  and  extraordin 
ary  rise  which  did  ensue  was,  in  fact,  artificial  and 
violent ;  such  as  no  discreet  calculation  of  probabili 
ties  could  have  presupposed.  It  therefore  cannot 
impeach  the  prudence  or  expediency  of  having  made 
provision,  on  a  different  supposition,  for  an  extension 
of  purchases. 

The  proceeds  of  the  bills  which  were  drawn  subse- 


Loans  1 5 1 

quent  to  May  only  began  to  be  collected  about  the 
beginning  of  February,  and  continued  in  collection 
until  the  2pth  of  March.  On  the  26.  of  February, 
the  sum  received  amounted  to  no  more  than  13,431 
dollars  and  33  cents. 

These  last  bills  were  drawn  when  the  rapid  rise  of 
stock  commenced,  and  were  sold  upon  a  credit  of 
three  months.  It  was  a  natural  conjecture,  that  a 
rise  so  sudden  and  violent  could  not  be  of  long  dura 
tion;  and  that  a  declension  would  shortly  succeed, 
which  would  afford  an  opportunity  of  purchasing 
with  advantage,  and  render  the  intervention  of 
public  purchases  advantageous  in  more  than  one 
respect.  The  event  fully  corresponded  with  the 
anticipation. 

With  regard  to  the  bills  drawn  in  April  last,  it  has 
been  stated  that  they  were  directed  to  be  sold  upon 
a  credit  of  six  months ;  that  those  drawn  in  July, 
August,  and  October  were  made  payable,  one  moiety 
in  two,  the  other  moiety  in  four  months.  Hence, 
with  a  moderate  allowance  for  delay  in  the  sales,  the 
period  contemplated  by  the  arrangement  for  the  com 
mencement  of  receipts  was  the  month  of  October; 
that  for  their  consummation,  the  month  of  February. 

The  inducements  to  the  drawing  of  these  bills 
have  been  stated.  The  present  examination  has 
relation  merely  to  the  question,  whether  the  Bank 
of  the  United  States,  by  premeditation  of  this  De 
partment,  or  subsequent  omissions,  had  enjoyed  any 
undue  advantage  from  the  deposits  of  the  proceeds 
of  the  bills  at  the  end  of  the  year  1792,  the  point  of 
time  to  which  this  inquiry  has  reference. 


152  Alexander  Hamilton 

The  statement  which  has  been  made,  as  to  the 
time  the  moneys  received  to  that  period  had  re 
mained  in  deposit,  might  alone  be  relied  upon  as  a 
sufficient  answer.  If  delinquency  can  be  attached 
to  the  non-employment  of  one  or  two  hundred 
thousand  dollars  for  a  few  weeks,  in  the  money  op 
erations  of  a  nation,  it  implies  a  minuteness  of  re 
sponsibility  which  could  never  be  encountered  with 
prudence,  and  never  will  be  fulfilled  in  practice. 
The  distractions  of  attention,  incident  to  a  great  and 
complicated  scene  of  business,  would  alone  disappoint 
the  expectation. 

But  I  have  more  than  this  to  offer  upon  the  present 
occasion.  The  opportunity  for  investing  the  moneys 
on  hand,  during  the  period  in  question,  was  not 
favorable.  This  was  experienced  by  the  Treasurer, 
in  his  endeavors  to  invest  the  fund  arising  from  the 
interest  on  the  purchased  debt.  There  was  no  part 
but  the  deferred  which  could  be  had  at  all  within 
the  limits  prescribed.  Several  indications  of  an  ap 
proaching  season,  more  advantageous  for  purchases, 
were  discernible,  and  a  better  employment  of  the 
money  than  at  the  then  prices  presented  itself  to 
the  option  of  the  Legislature.  This  mode  of  em 
ploying  it,  formed,  in  my  mind,  part  of  a  general 
plan  for  the  regular  redemption  of  the  public  debt, 
according  to  the  right  reserved  to  the  Government. 
The  one  per  cent,  which  might  be  saved  was  re 
garded  as  one  means  of  constituting  the  proposed 
annuities. 

Accordingly,  on  the  3oth  of  November  last,  pur 
suant  to  a  reference  of  the  226.  of  that  month,  and 


Loans  153 

connected  with  the  plan  of  redemption  contemplated, 
I  submitted  to  the  House  of  Representatives  a  pro 
position  for  applying  the  moneys  in  question  toward 
discharging  the  debt  which  the  Government  owes  to 
the  bank,  and  upon  which  an  interest  of  six  per  cent, 
is  payable.  This  was  manifestly,  at  the  time  of  the 
proposition,  the  most  profitable  use  that  could  be 
made  of  the  fund.  It  has  been  already  stated,  that 
it  would  produce  a  saving,  if  extended  to  the  whole 
two  millions,  worth  to  the  Government  an  annual 
sum  of  20,000  dollars — equal  to  a  capital  of  400,000 
dollars. 

This  proposition  tended  to  accelerate  the  employ 
ment  of  the  moneys  on  hand,  in  a  way  the  most 
beneficial  to  the  Government;  and  consequently  to 
shorten  the  duration  of  the  advantage  to  the  banks 
of  holding  them,  by  way  of  deposit.  I  submit  it  to  the 
candor  of  the  House,  whether  it  be  not  full  evidence 
that  there  was  no  disposition,  on  my  part,  to  prolong 
to  those  institutions  a  benefit  at  the  expense  of  the 
Government. 

The  proposition  itself  has  not  yet  received  the 
decision  of  the  House. 

Another  ground  upon  which  the  suggestion  of 
mismanagement  and  undue  concession  to  the  in 
terest  of  the  banks  has  been  founded,  respects  the 
domestic  loans  which  have  been  obtained.  Those 
of  them  which  have  been  made  of  the  Bank  of 
the  United  States  are  represented  as  unnecessary, 
tending  to  afford  an  emolument  to  that  institution, 
for  which  the  United  States  had  no  equivalent 
advantage. 


154  Alexander  Hamilton 

It  will  conduce  to  a  correct  judgment  of  this  mat 
ter,  to  resume  a  point  already  touched  upon,  and  to 
add  here  the  further  illustrations  of  it  which  have 
been  promised,  to  wit :  that  it  ought  to  be  a  general 
principle  to  have  constantly  in  the  command  of  the 
Treasury,  at  its  different  places  of  deposit,  a  sum  of 
about  500,000  dollars — a  principle,  too,  which  must 
be  understood  with  reference  to  the  beginnings  of 
the  quarters  of  a  year,  when  the  chief  public  pay 
ments  are  made  and  making. 

The  following  observations  will  apply  generally  to 
the  balances  which  appear  at  the  commencement  of 
each  quarter.  The  greatest  part  of  the  interest  for 
the  preceding  quarter  will  have  been  then  deducted; 
but  a  part  is  always  in  a  different  situation. 

The  payment  of  interest  upon  a  public  debt,  at 
thirteen  different  places,  is  an  operation  as  difficult 
and  complicated  as  it  is  new.  In  carrying  it  into 
execution,  it  is  of  necessity  to  lodge,  for  some  time 
previous  to  the  expiration  of  each  quarter,  at  several 
of  the  loan  offices,  drafts  of  the  Treasurer,  for  the 
sums  estimated  to  be  necessary  at  those  offices,  with 
blanks  for  the  direction,  and  with  liberty  to  the  re 
spective  officers  to  dispose  of  them  upon  different 
places,  as  a  demand  accrues.  This  arrangement  has 
an  eye  to  two  purposes :  to  avoid  large  previous  ac 
cumulations  at  particular  points;  to  facilitate  the 
placing  of  the  requisite  sums,  where  they  are  wanted, 
without  the  transportation  of  specie.  The  allowing 
of  the  drafts  to  be  disposed  of  on  several  places  gives 
larger  scope  to  a  demand  for  them,  and  renders  them 
more  easily  salable.  But  it  is  a  consequence  of  this 


Loans  155 

that  a  part  of  the  drafts  are  often  not  placed  and 
brought  into  the  accounts  of  the  Treasurer,  till  some 
time  after  the  expiration  of  the  quarter.  The  fund 
for  them  of  course  appears  on  hand  till  the  transac 
tion  is  completed. 

Connected  with  the  circumstance  of  paying  the 
interest  upon  the  public  debt  at  different  places,  is 
this  further  consequence.  The  transfers  continually 
going  on  from  one  office  to  another  render  it  im 
possible  to  know,  at  any  moment  when  provision  for 
the  payment  of  interest  is  to  be  made,  what  sum  is 
requisite  at  each  place.  Estimate  must  supply  the 
want  of  knowledge;  and,  to  avoid  disappointment 
anywhere,  the  estimate  must  always  be  large,  and  a 
correspondent  sum  placed  in  the  power  of  the  com 
missioners.  This  circumstance  alone  requires  an 
extra  sum  at  the  different  places  of  payment,  which 
ought  not  to  be  computed  at  less  than  fifty  thousand 
dollars. 

Again,  the  sums  payable  on  account  of  the  civil 
list,  at  the  end  of  each  quarter,  which  amount  to 
about  fifty  thousand  dollars,  exclusive  of  what  re 
lates  to  the  two  Houses  of  Congress,  are  always  in  a 
course  of  payment  for  some  time  within  the  succeed 
ing  quarter.  The  fund  for  them  consequently  ap 
pears  in  the  moneys  on  hand  at  the  beginning  of  such 
quarter. 

Again,  there  are  constantly  considerable  arrears  of 
existing  appropriations,  for  which  demands  on  the 
Treasury  are  at  every  moment  possible;  the  times 
when  they  will  be  presented,  and  to  what  extent,  at 
any  given  time,  being  in  a  great  degree  contingent. 


156  Alexander  Hamilton 

The  arrears  for  the  different  objects  of  the  War 
Department  can  seldom  be  estimated  at  less  than 
150,000  dollars. 

It  is  presumed  to  be  a  clear  principle,  that  the 
Treasury  ought  to  be  always  ready  to  face  such 
arrears  as  may  be  claimed  at  every  instant,  or 
within  any  short  period.  An  hour's  distress  or  em 
barrassment  to  make  good  a  public  payment,  already 
due,  would  be  baneful  to  public  credit.  It  has  been 
a  uniform  maxim  of  the  present  administration  of 
the  Treasury  never  to  risk  such  distress  or  embar 
rassment. 

Independently,  therefore,  of  the  weighty  considera 
tion  of  being  prepared  (especially  with  a  war  on 
hand  liable  every  moment  to  greater  extension)  for 
future  casualties,  the  mere  satisfaction  of  arrears 
ought  to  cause  the  constant  reservation  of  a  sum, 
that  would  be  moderately  stated  at  half  the  sum 
which  it  has  been  alleged  ought  always  to  be  in  the 
Treasury.  It  is  to  be  observed,  that  it  does  not 
often  happen  that  the  current  receipts  to  be  ex 
pected  in  any  immediately  succeeding  quarter  are 
likely  to  exceed  the  probable  expenditure  of  the 
quarter.  The  reverse  is  as  often  the  case.  Hence 
the  greater  necessity  of  maintaining  a  constant 
surplus. 

There  are  still  other  considerations  of  weight,  in  a 
just  estimate  of  the  point  in  question. 

The  sum  stated  as  necessary  to  be  always  in  the 
command  of  the  Treasury  is  never  in  fact  at  the  seat 
of  the  Government,  where  far  the  greatest  part  of 
the  public  disbursements  are  to  be  made.  The 


Loans  157 

depositories  of  it  are  the  several  banks  from  Charles 
ton  to  Boston.  The  whole  sum,  therefore,  can 
never  be  brought  into  immediate  action  for  answer 
ing  the  claims  upon  the  Treasury.  No  part  can  be 
properly  viewed  as  in  this  situation,  beyond  New- 
York  on  the  one  side,  and  Baltimore  on  the  other. 
Whatever  part  is  more  remote  than  these  points 
ought  not  to  be  regarded  as  capable  of  being  com 
manded  in  less  time,  upon  an  average,  than  sixty 
days,  making  allowance  for  the  usual  delays  in  the 
sale  of  bills,  and  the  usual  terms  of  credit,  which 
experience  has  shown  to  be  convenient. 

In  estimating  the  effective  sum  at  any  time  on 
hand,  in  the  Bank  of  the  United  States,  it  is  neces 
sary  to  be  known,  that  a  practice  for  the  simplifica 
tion  of  the  Treasurer's  bank  account,  begun  with  the 
Bank  of  North  America,  has  been  continued  with 
the  Bank  of  the  United  States,  of  this  nature:  The 
bills  drawn  by  the  Treasurer  upon  distant  places, 
and  deposited  with  the  bank  for  sale,  are  immediately 
passed  to  his  credit  as  cash,  though  they  are  allowed 
to  be  sold  at  credits  from  thirty  to  sixty  days;  and 
it  is  understood,  that  the  proceeds  are  not  demand- 
able  of  the  bank  till  they  are  collected.  Hence  the 
apparent  sum  in  the  Bank  of  the  United  States  is 
always  greater  than  the  real;  sometimes  to  a  large 
amount. 

The  deductions  to  be  made  for  this  circumstance 
are  shown  in  the  Treasurer's  half  monthly  statement 
of  balances  No.  5,  beginning  with  the  first  of  June, 
1792,  and  ending  with  the  first  of  January,  1793. 
The  period  begun  with  is  that  when  the  first 


158  Alexander  Hamilton 

instalment  of  the  loan  from  the  bank  was  payable 
and  has  been  selected  for  this  reason. 

The  propriety  of  these  deductions  appears  to  have 
been  objected  to,  by  anticipation,  on  two  grounds: 
one,  that  the  bills  deposited  answer  all  the  purposes 
of  cash,  and  ought  to  be  credited  as  such,  on  the  re 
ceipt  of  them ;  the  other,  that  "  there  is  a  regular  and 
constant  influx  of  moneys  into  the  bank,  by  the 
operation  of  these  bills,  and  that  it  is  not  very 
material  whether  a  bill  lodged  in  the  bank  to-day 
should  be  paid  to-day,  provided  something  like  the 
same  sum  should  be  paid  in  consequence  of  a  bill 
lodged  in  bank  one  or  two  months  ago,  and  the  bill 
of  to-day  should  be  paid  one  or  two  months  hence." 

Neither  the  one  nor  the  other  of  these  two  posi 
tions  is  correct. 

In  no  sense  are  the  notes  of  the  purchasers  of  the 
bills,  which  are  taken  payable  in  thirty,  forty-five, 
and  sixty  days,  the  same  thing  to  a  bank  as  cash.  It 
is  evident  it  could  not  pay  its  own  bills  with  those 
notes.  In  this  primary  particular,  therefore,  the 
comparison  fails;  neither  could  it  make  discounts 
upon  the  basis  of  those  notes  as  cash.  Because 
every  discount  gives  a  right  to  a  borrower  to  call  and 
receive  in  coin,  if  he  pleases,  the  amount  of  the  sum 
discounted.  Notes  are  not  coin,  nor  do  they  confer 
an  equal  power  to  pay.  It  is  true  that  a  bank  will, 
in  its  discounts,  make  some  calculation  on  expected 
receipts;  but  it  can  never  consider  them  as  equiva 
lent  to  cash  in  hand,  nor  operate  upon  them  in  any 
degree  to  the  same  extent  as  upon  equal  sums  in 
cash.  If  notes  payable  at  future  periods  were 


Loans  159 

equivalent  to  cash,  then  every  discount  made  by 
a  bank  would  confer  a  faculty  to  make  another  for 
an  equal  sum;  for  there  is  always  a  note  deposited 
for  the  sum  discounted,  and  the  power  of  discounting 
might,  by  the  mere  exercise  of  it,  become  infinite.  An 
hypothesis  of  this  kind  will  never  be  acted  upon  by 
any  prudent  directors  of  a  bank,  and  could  not  be 
long  acted  upon  without  ruin  to  the  institution.  It 
is  to  be  observed  that  the  great  profitable  business 
of  a  bank,  consists  in  discounting. 

There  is  but  one  light  in  which  the  position  under 
examination  is  in  any  degree  founded.  It  is  this, 
that,  were  it  not  for  the  instrumentality  of  the  bills, 
the  specie  of  the  bank  would  be  sometimes  remitted 
for  purposes  which  are  answered  by  the  bills.  As 
often  as  this  happens  they  are  a  substitute  to  the 
bank  for  cash,  because  they  prevent  equivalent  sums 
from  being  carried  away. 

But  this  only  sometimes  happens.  In  numerous 
instances  the  enterprises  to  which  the  bills  are  sub 
servient  would  not  be  undertaken  at  all  were  it  not 
for  the  power  of  anticipation  which  the  credits  upon 
them  afford.  In  many  other  instances  the  bills  of 
the  bank  itself  would  be  remitted  instead  of  specie; 
in  others,  private  bills  would  be  substituted;  in 
others,  mutual  credits  between  the  merchants,  to  be 
liquidated  in  the  course  of  mutual  dealings,  would 
supply  the  call. 

Hence  it  is  only  true  that  Treasury  bills  some 
times  answer  the  purpose  of  cash  to  the  bank,  whence 
it  does  not  follow  that  they  ought  always  to  be  con 
sidered  and  credited  definitively  as  cash.  It  is  also 


160  Alexander  Hamilton 

true,  though  in  a  less  degree,  that  notes  deposited 
with  the  bank  by  individuals,  for  collection,  some 
times  answer  to  it  the  purposes  of  cash;  but  it  will 
be  readily  perceived  that  it  would  be  inadmissible, 
as  a  general  rule,  to  receive  and  credit  them  as  such. 

The  effect  in  both  cases  would  be  that  the  bank 
would  make  an  advance  of  a  present  sum  without  in 
terest,  for  a  sum  to  be  received  in  future. 

An  arrangement,  indeed,  has  been  for  some  time 
depending  between  the  Bank  of  the  United  States 
and  the  Treasury,  for  securing  to  the  Government 
the  advantage  of  an  immediate  absolute  credit  for 
the  bills  deposited,  as  so  much  cash,  to  be  coupled 
with  some  collateral  accommodations  to  the  bank. 
But  it  has  not  yet  been  carried  into  effect.  The 
fact  heretofore  has  been  as  stated,  and  the  reasoning, 
to  be  just,  must  proceed  on  that  basis. 

The  last  of  the  two  positions  which  have  been 
cited  has  still  less  foundation  than  the  first. 

A  sum  received  to-day,  for  a  bill  deposited  two 
months  past,  can  in  no  view  be  deemed  a  substitute 
for  the  amount  of  a  bill  deposited  to-day  to  be 
received  two  months  hence.  It  is  to  be  remembered 
that  the  amount  of  the  first  bill  was  itself  credited 
at  the  time  of  the  deposit;  and  that  the  sum  received 
to-day  on  that  account  can  only  realize  the  antecedent 
credit.  It  cannot  represent  or  be  an  equivalent  for 
the  future  receipt  upon  a  different  bill.  To  affirm 
that  it  could,  is  to  make  one  sum  the  representative 
of  two.  The  consequence  of  the  reasoning  would  be 
that  the  Government  ought  to  receive  the  money 
paid  in  to-day  as  a  satisfaction,  as  well  for  the  bill 


Loans  161 

deposited  to-day,  as  for  that  which  was  deposited 
two  months  past. 

Making  the  proper  deductions  on  account  of  the 
bills,  the  amount  of  the  effective  cash  in  the  banks 
of  Philadelphia,  New  York,  and  Baltimore  was,  on 
the  first  of  June,  587,091  dollars  and  n  cents;  in 
other  banks  there  was  then  also  the  further  sum  of 
9,591  dollars  and  89  cents,  making  together  596,683 
dollars.  The  amount  of  the  effective  cash  on  the 
second  of  July  in  the  banks  of  Philadelphia,  New 
York,  and  Baltimore  was  217,234  dollars  and  76 
cents;  there  were  then  also  in  the  other  banks 
184,998  dollars  and  85  cents;  making,  together, 
402,233  dollars  and  61  cents.  The  amount  of  the 
effective  cash  on  the  first  of  October  in  the  banks  at 
Philadelphia,  New  York,  and  Baltimore  was  244,394 
dollars  and  27  cents;  there  were  then  also  in  the 
other  banks  145,420  dollars  and  24  cents;  making, 
together,  389,814  dollars  and  51  cents. 

The  deductions  for  bills  at  the  several  periods 
were,  June  ist,  157,508  dollars  and  33  cents;  July 
second,  220,900  dollars;  October  first,  31,100  dol 
lars;  so  that,  including  the  bills  at  that  epoch,  the 
whole  sum  in  the  banks  at  Philadelphia,  New  York, 
and  Baltimore  amounted  to  no  more  than  275,494 
dollars  and  27  cents;  the  sums  in  the  other  banks, 
to  145,420  dollars  and  24  cents. 

On  the  first  of  June  there  were  paid  on  account  of 
the  debt  to  France  100,000  dollars;  the  day  follow 
ing,  the  first  instalment  of  100,000  dollars,  on  ac 
count  of  the  loan  from  the  bank,  was  received.  On 
the  3oth  of  June  the  second  instalment  of  100,000 


VOL.  III. — II. 


1 62  Alexander  Hamilton 

dollars  was  received.  These  two  instalments, 
amounting  to  200,000  dollars,  are  included  in  the 
sum  of  217,234  dollars  and  76  cents,  which,  on  the 
2d  of  July,  constituted  the  cash  in  all  the  banks  at 
Philadelphia,  New  York,  and  Baltimore. 

About  the  beginning  of  August  another  instal 
ment  on  account  of  the  loan  of  the  bank  was  re 
ceived,  and  on  the  29th  of  September  another, 
making,  with  the  preceding  ones,  400,000  dollars. 
This  sum  was  involved  in  the  balance  in  the  Treasury 
on  the  first  of  October,  which,  it  has  been  seen,  did 
not  exceed  in  the  banks  at  and  near  the  seat  of  the 
Government,  including  even  unsold  and  unpaid  bills, 
275,494  dollars  and  27  cents;  and,  comprehending 
the  sums  in  all  the  other  banks,  amounted  to  no 
more  than  420,914  dollars  and  51  cents. 

From  the  foregoing  detail  it  appears  that,  exclud 
ing  the  200,000  dollars  received  on  loan  of  the  Bank 
of  the  United  States,  in  the  month  of  June,  there 
would  have  been,  on  the  2d  of  July,  1792,  in  the 
command  of  the  Treasury  at  those  places,  from 
which  immediate  supplies  may  be  derived,  no 
greater  sum  than  17,234  dollars  and  76  cents;  that, 
excluding  the  400,000  dollars,  before  that  time  re 
ceived  on  loan  of  the  same  bank,  there  would  have 
been  on  the  ist  of  October,  1792,  an  absolute  de 
ficiency  within  the  scene  described  of  124,505  dollars 
and  73  cents;  that  the  whole  balance  then  in  the 
Treasury,  wheresoever  deposited,  amounted  only  to 
420,914  dollars  and  51  cents,  and,  excluding  the  loan 
of  the  bank,  would  not  have  been  more  than  20,914 
dollars  and  51  cents. 


Loans  163 

There  must  be  some  very  radical  error  in  my 
conceptions  of  the  proper  condition  of  the  Treasury, 
if  it  was  not  in  a  sufficiently  low  state,  during  the 
whole  period  under  consideration;  and  if  it  be  not 
demonstrated  that  the  moneys  taken  of  the  bank  on 
loan  were  necessary  for  the  public  service,  and  were 
obtained  with  a  due  regard  to  economy. 

There  are  circumstances  which  still  further  mani 
fest  the  attention  which  has  been  paid  to  this  point. 
The  powers  given  to  make  loans  for  domestic  pur 
poses  at  different  times,  up  to  the  8th  of  May,  1792, 
comprehend  an  aggregate  of  1,053,355  dollars  and 
74  cents;  the  sums  which  have  been  actually  ob 
tained  upon  interest  amount  to  no  more  than  455,- 
ooo  dollars. 

The  contract  upon  which  the  400,000  dollars  were 
obtained  was  made  on  the  25th  of  May,  1792,  ex 
tending  to  523,500  dollars,  and  contemplating  the 
payment  of  400,000  dollars  of  that  sum  by  the  bank, 
in  equal  monthly  instalments,  beginning  on  the  ist 
of  June,  and  ending  the  ist  of  September;  the 
residue  on  the  ist  of  January,  1793. 

Previous  to  the  making  of  that  contract  there  had 
been  stipulated  to  be  paid  on  account  of  the  French 
debt,  for  the  supplies  of  St.  Domingo,  400,000  dol 
lars,  of  which  one  fourth  was  paid  in  March,  another 
fourth  was  payable  on  the  ist  of  June,  another 
fourth  on  the  ist  of  September,  another  fourth  on 
the  ist  of  December. 

Particular  causes  render  it  an  accommodation 
to  the  agents  of  France  to  postpone  and  subdivide 
the  September  instalment.  A  similar  postponement 


164  Alexander  Hamilton 

took  place  with  regard  to  the  instalment  payable  by 
the  bank  on  the  ist  of  September,  which  was  not  de 
manded  till  the  latter  end  of  the  month,  and  the 
remainder  of  the  sum  contracted  for  has  not  yet 
been  demanded.  The  spirit  of  the  precaution, 
which  secured  to  the  public  the  privilege  of  making 
or  forbearing  its  calls,  according  to  circumstances, 
needs  no  comment. 

There  remain  to  be  noticed  two  circumstances, 
which  will  serve  to  throw  additional  light  upon  the 
conduct  which  has  been  observed  with  regard  to 
the  sums  from  time  to  time  kept  on  hand.  A  com 
parison  of  the  sums  in  the  Treasury,  during  the  years 
1791  and  1792,  will  contradict  the  idea  of  any  dis 
position  to  suffer  the  public  moneys  to  accumulate, 
for  the  benefit  of  the  Bank  of  the  United  States,  and 
its  subdivisions,  and  will  at  the  same  time  indicate 
the  general  rule  which  has  governed.  In  this  com 
parison,  it  is  necessary  to  recollect  that  larger  opera 
tions  were  to  be  performed  in  1792. 

It  may  be  objected,  that  the  rule  laid  down  has 
been  on  several  occasions  exceeded.  How  this  has 
happened  at  certain  periods  has  been  explained. 
But  there  is  a  view  of  the  subject  which  will  throw 
further  light  upon  it. 

The  sums  which  appear  on  hand  at  the  end  of  any 
quarter  are  always  larger  on  a  retrospective  than  on 
a  previous  view.  This  proceeds  from  the  following 
cause : 

The  judgment  to  be  formed  beforehand  of  the  sums 
which  will  be  received  within  any  future  period  must 
of  necessity  be  regulated  by  the  returns  in  posses- 


Loans  165 

sion  of  the  Treasury  at  the  time  the  examination  is 
made.  As  these  come  forward  with  more  or  less 
punctuality,  that  judgment  will  be  more  or  less 
accurate;  but,  the  appearance  on  the  returns  will 
always  be  short  of  the  fact,  because  a  certain  number 
of  returns,  at  any  period  of  examination,  will  neces 
sarily  be  deficient.  What  does  not  appear,  must 
of  course  be  essentially  excluded  from  the  calcula 
tion  of  the  receipts  to  be  expected  within  any  near 
period.  Because  the  extent  of  the  sums  which  may 
have  accrued,  beyond  those  shown  by  the  returns 
in  hand,  is  unknown,  and  it  is  still  more  uncertain 
in  what  months  the  payments  of  them  may  fall; 
and  the  combinations  of  the  Treasury,  as  to  the 
means  of  fulfilling  the  demands  upon  it,  ought  to 
proceed  as  little  as  possible  upon  conjectures  and 
uncertainties. 

Monthly  abstracts  of  the  bonds  taken  at  each  port 
are  the  documents  which  serve  to  inform  the  Treas 
ury  of  the  progress  of  the  receipts  upon  the  duties  of 
imports.  From  these  a  general  abstract  is  made  up 
once  a  month  at  the  Treasury,  for  the  information 
of  the  head  of  the  Department,  showing  the  amount 
payable  in  each  month. 

But  very  considerable  differences  appear  from 
one  month  to  another.  The  statement  CZ,  will 
serve  as  an  illustration. 

It  contains  a  comparison  of  the  sums  shown  by 
two  successive  abstracts,  one  of  the  yth  of  Novem 
ber,  the  other  of  the  yth  of  December  last,  for  a 
term  of  ten  months,  distributed  into  monthly  sub 
divisions.  The  aggregate  difference  upon  the  whole 


1 66  Alexander  Hamilton 

term  between  the  two  abstracts  is  495,308  dollars 
and  73  cents;  upon  two  months,  beginning  with 
November  and  ending  with  December,  it  is  151,789 
dollars  and  40  cents ;  upon  a  quarter  beginning  with 
January  and  ending  with  March,  it  is  174,471  dol 
lars  and  66  cents;  upon  a  subsequent  quarter,  it  is 
81,055  dollars  and  81  cents;  upon  a  still  subsequent 
quarter,  it  is  87,991  dollars  and  86  cents. 

Hence  it  is  evident,  that  an  arrangement  founded 
upon  the  abstract  of  the  7th  of  November  would 
suppose  a  receipt  during  any  part  of  the  time  em 
braced  by  it,  even  the  most  proximate,  considerably 
less  than  would  appear  by  the  abstract  only  one 
month  later;  and  it  must  always  happen,  from  this 
circumstance,  that  the  actual  receipts,  while  punc 
tuality  is  preserved,  will  exceed  the  anticipations  of 
them,  and  that  greater  balances  will  be  found  to 
exist  at  any  given  period  than  could  have  been  be 
forehand  safely  calculated  or  acted  upon.  This  cir 
cumstance,  duly  considered,  will  be  a  further  and 
powerful  justification  of  the  conduct  pursued  gener 
ally,  in  relation  to  the  moneys  from  time  to  time 
kept  on  hand,  and  particularly  with  regard  to  the 
loans  of  the  bank.  Low  as  the  state  of  the  Treasury 
appears  to  have  been  on  a  retrospective  view,  when 
the  moneys  upon  those  loans  were  called  for,  the 
prospect,  at  each  time,  must  have  presented  the 
appearance  of  a  less  competent  supply,  or  a  greater 
deficiency,  than  was  afterwards  realized. 

I  am  not  sure  but  that  I  owe  an  apology  to  the 
House  for  taking  up  so  much  of  its  time  in  obviating 
the  imputation  of  partiality  or  favoritism  towards 


Loans  167 

the  banks;  the  aspect  under  which  I  view  it  ad 
monishes  me,  that  I  may  have  annexed  to  it  greater 
importance  than  was  intended  to  be  given  to  it  by 
its  authors. 

That  a  disposition  friendly  to  the  accommodation 
of  those  institutions,  as  far  as  might  be  consistent 
with  official  duty  and  the  public  interest,  has  charac 
terized  the  conduct  of  the  Department,  will  not  be 
denied. 

No  man,  placed  in  the  office  of  the  Secretary  of  the 
Treasury,  whatever  theoretic  doubts  he  may  have 
brought  into  it,  would  be  a  single  month  without 
surrendering  those  doubts  to  a  full  conviction,  that 
banks  are  essential  to  the  pecuniary  operations  of 
the  Government. 

No  man,  having  a  practical  knowledge  of  the 
probable  resources  of  the  country,  in  the  article  of 
specie  (which  he  would  with  caution  rate  beyond  the 
actual  revenues  of  the  Government),  would  rely  upon 
the  annual  collection  of  4,500,000  dollars,  without 
the  instrumentality  of  institutions  that  give  a  con 
tinual  impulse  to  circulation,  and  prevent  the  stag 
nation  to  be  otherwise  expected  from  locking  up 
from  time  to  time  large  sums  for  periodical  disburse 
ments;  to  say  nothing  of  the  accommodations, 
which  facilitate  to  the  merchant  the  payment  of 
the  considerable  demands  made  upon  him  by  the 
Treasury. 

No  man,  practically  acquainted  with  the  pecuniary 
ability  of  individuals,  in  this  country,  would  count 
upon  finding  the  means  of  those  anticipations  of  the 
current  revenue  for  the  current  service,  which  have 


1 68  Alexander  Hamilton 

been,  and  will  be  necessary,  from  any  other  source 
than  that  of  the  banks. 

No  prudent  administrator  of  the  finances  of  the 
country,  therefore,  but  would  yield  to  the  disposition, 
which  has  been  acknowledged,  as  alike  essential  to 
the  interest  of  the  Government,  and  to  the  satisfac 
tory  discharge  of  his  trust;  a  disposition  which 
would  naturally  lead  to  good  offices,  within  the 
proper  and  justifiable  bounds. 

After  the  explanation  which  has  been  offered,  to 
manifest  the  necessity  and  propriety  of  the  loans 
made  of  the  bank,  it  can  scarcely  be  requisite  to 
enter  into  a  refutation  of  the  process  by  which  it  has 
been  endeavored  to  establish  that  the  Government 
pays  seventeen  per  cent,  upon  those  loans.  The 
state  of  the  Treasury  rendered  it  expedient  to  bor 
row  the  sums  which  were  borrowed;  they  have  been 
duly  received,  and  the  rate  of  interest  stipulated 
upon  them  is  five  per  cent.  The  Government  then 
pays  upon  them  five  per  cent,  and  no  more. 

The  history  which  was  given,  in  my  last  letter,  of 
the  course  and  situation  of  the  foreign  fund,  proves 
that  the  supposition  from  which  the  inference,  of  pay 
ing  seventeen  per  cent,  upon  the  domestic  loan,  has 
been  drawn,  is  erroneous.  The  balances  on  hand, 
at  the  respective  periods  in  question,  are  the  residues 
of  the  moneys  which  had  been  received  from  every 
source,  including  the  loans,  foreign  and  domestic. 

But  if  the  supposition  which  appears  to  have  been 
made  had  been  true,  it  was  still  impossible  that 
seventeen  per  cent,  could  have  been  paid.  By  no 
construction  can  the  rate  be  extended  beyond  ten. 


Loans  169 

The  mean  interest  of  the  money  borrowed  abroad, 
including  charges,  is  five  per  cent.;  the  interest 
stipulated  to  be  paid  on  the  loan  from  the  bank  is 
also  five;  the  sum  of  the  two  is  ten.  It  is  imma 
terial  for  what  purpose  the  foreign  fund  was  ob 
tained,  whether  to  pay  to  France  or  to  purchase  the 
debt ;  the  worst  consequence  that  can  result  is  double 
not  treble  interest.  The  interest  payable  to  France 
is  payable  for  moneys  borrowed  and  spent  during  the 
war.  It  can  never  be  truly  said,  that  that  interest 
is  now  payable  on  any  existing  fund,  whether  bor 
rowed  in  Holland  or  borrowed  in  the  United  States, 
or  borrowed  there  and  re-borrowed  here.  It  can 
never  serve  to  make  an  addition  to  the  cost  or 
charges  of  any  such  fund.  T  is  payable  upon  one 
long  since  procured  and  used. 

But  it  is  not  obvious  how  the  supposition  came  to 
be  entertained,  that  all  the  moneys  drawn  here  from 
the  foreign  fund  had  been  borrowed  for  the  payment 
of  the  debt  to  France.  The  presumption  would  seem 
to  have  been  more  natural,  that  they  had  been  prin 
cipally,  if  not  wholly,  introduced  with  a  view  to  pur 
chases  of  the  debt,  and  consequently  had  a  more 
special  reference  to  the  act  authorizing  a  loan  for 
that  purpose.  And  the  fact  is,  that  this  was  the 
destination  of  far  the  greatest  proportion  of  the 
sums  drawn  for.  It  has  been  stated  that  a  part  had 
an  eye  to  the  supplies  to  St.  Domingo,  and  that  an 
other  part  was  introduced  with  a  view  to  the  pay 
ment  of  the  foreign  officers. 

The  additional  observations  to  which  I  shall  re 
quest  the  attention  of  the  House  will  apply  to  the 


17°  Alexander  Hamilton 

course  and  state  of  the  sinking  fund,  concerning 
which  I  transmitted  with  my  last  communication 
three  statements,  numbered  L,  II.,  III.1 

To  give  a  more  collected  view  of  this  part  of  the 
subject,  it  may  be  of  use  to  include  here  a  recapitula 
tion  of  some  ideas  which  have  been  stated  in  other 
places. 

It  is  the  course  and  practice  of  this  Department, 
for  all  public  moneys,  from  whatever  source  proceed 
ing,  to  pass  into  the  Treasury,  and  there  form  a  com 
mon  mass,  subject,  under  the  responsibility  of  the 
officers  of  the  Department,  to  the  dispositions  which 
have  been  prescribed  by  law. 

The  surplus  at  the  end  of  the  year  1790,  appropri 
ated  to  the  sinking  fund,  amounting  to  1,374,656 
dollars  and  40  cents,  went,  as  it  was  received,  into 
the  Treasury. 

All  the  proceeds  of  the  bills  drawn  upon  the 
foreign  fund  prior  to  April,  1792,  except  the  sum  of 
177,998  dollars  and  80  cents,  left  in  deposit  with  the 
Bank  of  North  America  for  reasons  which  have  been 
explained,  passed  from  time  to  time  into  the  Treas 
ury.  The  whole  amount  of  the  sums  paid  in  is  907,- 
294  dollars  and  23  cents. 

The  proceeds  of  the  bills  drawn  for,  in  and  sub 
sequent  to  April,  1792,  have  not  yet  passed  into  the 
Treasury,  for  reasons  which  have  been  likewise  as 
signed.  It  would  have  been  done  before  this  time, 
as  far  as  the  receipts  had  gone,  but  for  the  present 
inquiry,  which  temporarily  suspended  it.  I  thought 
it  best  to  make  no  alteration  in  the  state  of  things  as 

1  For  these  statements  see  State  Papers,  vol.  i.,  pp.  210,  211,  212. 


Loans  171 

they  stood  when  it  began,  at  least  till  all  the  in 
formation  desired  had  been  given.  Measures  will 
now  be  taken  for  a  settlement  of  the  accounts,  and 
for  a  transfer  of  the  proceeds.  The  whole  amount 
of  those  bills,  paid  and  unpaid,  including  an  esti 
mated  sum  of  interest,  will  be,  as  heretofore  stated, 
1,220,476  dollars  and  10  cents. 

The  whole  amount  of  the  bills  drawn  is  2,305,769 
dollars  and  13  cents. 

Out  of  the  sinking  fund,  composed  of  the  surplus 
of  the  revenue  to  the  end  of  1790  and  the  proceeds 
of  the  foreign  bills,  there  were  issued  from  the 
Treasury  and  expended  in  purchases,  to  the  end  of 
1792,  957,770  dollars  and  65  cents. 

For  reasons  which  have  been  stated,  it  was  finally 
deemed  advisable  to  place  those  purchases  wholly  to 
the  account  of  the  surplus  of  1790. 

Consequently,  there  remained  on  the  ist  of  Janu 
ary  of  the  present  year  416,885  dollars  and  75  cents 
of  the  above-mentioned  surplus  unapplied  to  pur 
chases;  and  the  whole  of  the  foreign  fund,  except 
the  sum  of  726,000  dollars  paid  and  reserved  to  be 
paid  for  the  use  of  the  colony  of  St.  Domingo,  and 
the  sum  of  191,316  dollars  and  90  cents  paid  and 
reserved  to  be  paid  to  the  foreign  officers,  became 
free  for  future  application.  The  balance  of  the  pro 
ceeds  of  the  bills,  after  deducting  for  those  reserva 
tions,  is  1,388,452  dollars  and  22  cents. 

Since  the  ist  of  January,  1793,  there  have  been 
issued,  on  account  of  the  foreign  fund,  for  purchases, 
284,901  dollars  and  89  cents. 

The  practice  has  uniformly  been  not  to  separate 


1 72  Alexander  Hamilton 

any  of  the  moneys  belonging  to  the  sinking  fund 
from  the  common  mass  of  the  moneys  in  the  Treas 
ury,  but  in  proportion  to  the  occasions  of  investing 
them  in  purchases. 

Hence  the  sum  of  957,770  dollars  and  65  cents, 
issued  previous  to  the  present  year,  and  the  sum 
of  284,901  dollars  and  89  cents,  issued  during  the 
present  year,  making,  together,  1,242,672  dollars  and 
54  cents,  are  all  the  moneys  which  have  been  ever 
separated  from  the  common  mass  of  the  Treasury 
for  the  purpose  of  the  sinking  fund;  the  whole  of 
which,  except  49,282  dollars  and  74  cents,  has  been 
actually  expended  in  purchases. 

The  unapplied  sum  remains  deposited  in  the  Bank 
of  the  United  States,  except  a  small  balance  of  61 
dollars  and  76  cents,  in  the  hands  of  William  Heth. 

From  the  above  rule,  the  part  of  the  sinking  fund 
arising  from  interest  on  the  debt  extinguished  by 
purchases  or  otherwise  is  to  be  excepted.  The 
practice  hitherto  has  been  to  include  this  interest  in 
the  general  dividend  of  each  quarter,  and  the  war 
rant  issued  to  the  cashier  of  the  bank  for  paying  it. 
The  statement  No.  3,'  accompanying  my  last  letter, 
shows  the  application  of  this  fund  hitherto. 

The  law  directs  that  this  fund  shall  be  invested 
within  thirty  days  after  each  quarter.  This  pro 
vision  began  to  take  effect  on  the  ist  of  July  last. 

But  the  investments  were  not  made  within  the 
respective  times  prescribed.  This  proceeded  partly 
from  the  state  of  the  market,  and  partly  from  the 
regulations  adopted  by  the  commissioners,  who  were 

1  For  statement  No.  3,  see  State  Papers,  "  Finance,"  vol.  i.,  p.  212. 


Loans  1 73 

the  Secretary  of  State,  the  Attorney-General,  and 
the  Secretary  of  the  Treasury. 

Their  regulations,  applying  to  the  two  first 
quarters,  limited  the  prices  to  certain  rates,  and 
prescribed  the  mode  of  sealed  proposals.  The  Treas 
urer  was  appointed  agent  for  the  commissioners. 

The  proposals,  with  regard  to  the  first  quarter, 
were  receivable  till  the  28th  of  July  inclusively; 
none  were  offered,  as  the  Treasurer  reported  to  me, 
and  nothing  was  done. 

The  experiment  of  sealed  proposals  was  again 
tried  the  second  quarter,  with  somewhat  more, 
though  with  but  little,  success.  The  restriction  to 
this  mode  of  proceeding  was  rescinded  on  the  last 
day  of  the  thirty  allowed  for  purchasing,  and  some 
further  purchases  were  made,  but  the  whole  sum  in 
vested  was  only  25,969  dollars  and  96  cents. 

The  residue  of  this  fund,  except  some  small  sums 
noted  at  foot  of  statement  No.  3,  was  in  January  past. 

The  unapplied  part  of  the  surplus  of  1790  having 
been  expended  in  aid  of  the  receipts  of  1791,  accord 
ing  to  the  provision  which  was  made  for  that  pur 
pose,  will  remain  suspended  until  the  future  receipts 
shall  so  far  exceed  the  current  disbursements  as  to 
produce  a  surplus  for  replacing  it. 

In  computing  the  amount  of  the  unapplied  foreign 
fund,  it  is  necessary  to  take  into  the  account  the 
payments  made  from  it  during  the  years  1791  and 
1792  on  account  of  the  interest  of  the  foreign  debt. 

Provision  having  been  made  for  paying  this  in 
terest  out  of  the  domestic  revenues,  the  sums  which 
have  been  paid  on  that  account  from  the  foreign 


174  Alexander  Hamilton 

fund  are  to  be  considered  in  the  same  light  as  if  they 
had  been  transferred  here  by  drafts. 

The  amount  paid  at  Amsterdam  is  1,633,189 
guilders  and  two  stivers,  equal,  at  36^  ninetieths 
per  guilder,  to  659,874  dollars  and  34  cents. 

There  will  be  additions  to  be  made,  which  are  not 
at  present  ascertained. 

Adding  this  sum  to  the  proceeds  of  the  bills,  and 
deducting  the  sums  paid  and  to  be  paid  for  St. 
Domingo  and  the  foreign  officers,  and  those  applied 
to  purchases  during  the  present  year,  there  will  re 
main  a  sum  of  1,763,424  dollars  and  68  cents,  subject 
to  a  future  application. 

Of  this  sum  1,715,098  dollars  and  n  cents  will 
be  properly  applicable  to  the  purchase  of  the  debt. 
But  circumstances  may  render  it  eligible  to  appro 
priate  a  part  of  it  toward  the  discharge  of  the 
foreign  debt. 

From  the  plan  which  has  been  pursued,  it  is  also 
liable  to  this  application. 

I  have  the  honor  to  annex  to  the  statements  here 
tofore  transmitted  those  in  the  printed  schedules 
marked  A,  B,  and  C.1 

A  exhibits  the  relative  state  of  revenue  and  appro 
priations  to  the  end  of  1792 ;  B,  the  relative  state  of 
appropriations  and  expenditures  to  the  same  period, 
showing  the  balance  unsatisfied  of  each  head  of  ap 
propriation;  C  applies  these  statements  to  an  ex 
planation  of  the  demands  or  charges  upon  the  excess 
of  income  beyond  the  disbursements  to  the  end  of 
1792. 

1  For  A,  B,andCseeS/ote  Papers,  "  Finance,"  vol.  i.,  pp.  219  to  222. 


Loans  1 75 

In  addition  to  these  are  two  statements,  marked 
D  and  E. 

D,  showing  what  proportion  of  the  balances  un 
satisfied  of  the  several  appropriations  are  likely  to  be 
real  expenditures,  and  what  part  are  not  likely  to  be 
so.     In  this,   however,   in  several  instances,   prob 
ability  must  guide,  the  nature  of  the  thing  not  ad 
mitting  of  certainty 

E,  showing  the  cash  on  hand  upon  the  first  of 
January  last,  and  likely  to  be  received  from  that  day 
to  the  first  of  April  next,  and  the  sums  paid  and  pay 
able  during  that  period. 

The  result,  founded  upon  facts,  contradicts  very 
essentially  that  statement  which  aims  at  showing 
the  ability  of  the  Treasury,  besides  defraying  the 
current  expenses  of  the  quarter,  to  pay  of!  two 
million  dollars  to  the  bank,  still  leaving  a  balance 
in  favor  of  the  Treasury  of  664,263  dollars  and  54 
cents. 

It  shows  that,  after  satisfying  the  demands  for 
which  the  Treasury  is  bound  to  be  prepared,  includ 
ing  a  payment  to  the  bank  of  only  one  tenth  part 
of  the  two  million  dollars  of  which  the  statement 
alluded  to  supposes  the  complete  payment,  there 
would  remain  a  balance  in  favor  of  the  Treasury  of 
no  more  than  664,180  dollars  and  89  cents. 

It  could  answer  no  valuable  purpose  to  delay  the 
House  with  a  particular  examination  of  the  various 
misapprehensions  which  have  led  to  a  result  so 
different  from  the  true  one.  It  will  be  sufficient,  as 
an  example,  to  state  a  single  instance.  It  is  as 
sumed,  as  an  item  in  the  calculation,  that  a  sum  of  a 


i;6  Alexander  Hamilton 

million  of  dollars  will  come  into  the  Treasury  by  the 
first  of  April,  on  account  of  the  revenue  of  the  current 
year,  while  the  probability  is,  that  the  sum  received 
may  not  exceed  ten  thousand  dollars ;  this  presump 
tion  of  a  million  is  evidently  founded  upon  two  mis 
takes,  i  st.  It  proceeds  on  the  basis  of  an  annual 
revenue  of  four  millions  of  dollars,  and  supposes  this 
sum  equally  distributed  between  the  different  quar 
ters  of  the  year,  a  million  to  each  quarter,  when,  in 
fact,  there  are  two  seasons  of  the  year  incomparably 
more  productive  than  the  other  parts  of  it,  viz.: 
those  portions  of  the  spring  and  fall  which  are  em 
braced  by  the  second  and  third  quarters;  the  first 
and  fourth  being  far  less  productive.  2d.  It  sup 
poses  all  the  duties  which  accrue  are  immediately 
paid,  whereas  the  cases  of  prompt  payment  are  con 
fined  to  those  in  which  the  duties  on  particular 
articles,  imported  in  one  vessel,  by  one  person  or  co 
partnership,  do  not  exceed  fifty  dollars;  in  all  other 
instances,  a  credit  of  not  less  than  four  months  is 
allowed,  which  carries  the  payment  on  the  importa 
tions,  upon  the  very  first  day  of  the  quarter,  a  month 
beyond  the  expiration  of  it. 

If  the  whole  amount  of  the  duties  which  accrued 
during  the  first  quarter  of  1792,  in  cash  and  bonds, 
was  no  more  than  307,163  dollars  and  84  cents, 
adding  one  seventh  for  the  additional  duties,  it 
ought,  by  analogy,  to  be  during  the  first  quarter  of 
the  present  year  322,472  dollars  and  94  cents;  less, 
in  totality,  than  the  sum  which  it  has  been  com 
puted  would  be  actually  in  money  in  the  Treasury, 
by  677,527  dollars  and  6  cents;  and  less,  by  the  whole 


Loans  177 

million,  nearly,  than  will  probably  be  in  money  in  the 
Treasury  on  that  account.     With  perfect  respect, 

I  have  the  honor  to  be,  sir, 
Your  most  obedient  and  most  humble  servant, 
ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

The  Honorable  the  Speaker  of  the 
House  of  Representatives. 

A  x. — Market-prices  of  public  stocks,  taken  from  actual  purchases 

and  sales. 

B  y. — Prices  of  the  public  stocks,  taken  from  the  Gazette  of  the 
United  States. 

C  Z. — Comparative  statement  of  bonds  for  duties  becoming  due  from 
November,  1792,  to  September,  1793,  inclusive,  as  per  monthly  ab 
stracts  thereof,  taken  7th  November  and  7th  December,  1792. 

D. — Statement  showing  the  sums  of  appropriation,  to  the  end  of  the 
year  1792,  which  will  probably  not  be  required  to  satisfy  the  same. 

E. — Probable  state  of  cash,  from  the  last  of  Dec.  1792,  to  the  ist  of 
April,  1793. — See  State  Papers,  "Finance,"  vol.  i.,  p.  230. 

[In  State  Papers,  "Finance,"  vol.  i.,  page  281,  may  be  seen  a  Report 
of  a  Committee  of  the  House  of  Representatives,  on  "The  Condition 
of  the  Treasury,"  explanatory  of  the  matters  to  which  this  and  several 
of  the  preceding  papers  relate.| 

OBSERVER  " 

March,  1793. 

Among  the  observations  which  have  appeared  as 
containing  the  debates  in  Congress  respecting  the 
official  conduct  of  the  Secretary  of  the  Treasury,  Mr. 
Findley  is  represented  as  having  made  the  following 
assertions :  "  That  the  Secretary  of  the  Treasury  had 
acknowledged  that  he  had  not  applied  the  money 
borrowed  in  Europe  agreeably  to  the  legal  appropria 
tions  of  the  President.  That  he  had  acknowledged  his 

1  The  speech  of  Mr.  Findley,  here  referred  to,  was  made  March  i, 
1793,  and  this  reply  probably  appeared  immediately  afterwards,  but 
I  have  not  been  able  to  discover  in  what  newspaper  it  was  published. 

VOL.  HI.— 12. 


178  Alexander  Hamilton 

having  drawn  to  this  country,  and  applied  in  Europe 
to  uses  for  which  other  moneys  were  appropriated, 
three  millions  of  dollars.  That  he  had  acknowledged 
his  having  drawn  from  Europe  more  money  than 
the  law  authorized  him  to  do.  That  he  was  influ 
enced  to  do  so  by  motives  not  contemplated  by  the 
law,  and  had  either  applied  it,  or  drawn  it  from  Eu 
rope,  with  the  design  of  applying  it  to  uses  not  au 
thorized,  and  that  he  had  broken  in  upon  the  fund 
appropriated  for  the  discharge  of  the  French  debt." 
Before  I  read  this  speech  I  had  carefully  perused 
the  different  communications  made  by  the  Secretary 
of  the  Treasury  to  the  House  of  Representatives,  and 
after  reading  it  I  was  led  to  revise  them.  The  result 
has  been  that  I  have  found  all  these  assertions  at 
tributed  to  Mr.  Findley  either  direct  untruths  or 
palpable  misrepresentations,  and  I  challenge  Mr. 
Findley  or  any  of  his  friends  to  produce  the  passages 
which  will  warrant  them.  The  truth  is,  that  Mr. 
Findley  has  palmed  upon  the  Secretary  his  own 
reasonings  and  inferences  for  points  conceded  by 
him.  The  commentary  has  been  substituted  for  the 
text.  OBSERVER. 


HAMILTON  TO  THE  SPEAKER  OF  THE  HOUSE  OF  REPRE 
SENTATIVES 

TREASURY  DEPARTMENT,  December  16,  1793. 

SIR: 

It  is  known  that  in  the  last  session  certain  ques 
tions  were  raised  respecting  my  conduct  in  office, 
which,  though  decided  in  a  manner  the  most  satis 
factory  to  me,  were  nevertheless  unavoidably,  from 


Loans  1 79 

the  lateness  of  the  period  when  they  were  set  on 
foot,  so  accelerated  in  the  issue,  as  to  have  given 
occasion  to  a  suggestion  that  there  was  not  time  for 
a  due  examination.  Unwilling  to  leave  the  matter 
on  such  a  footing,  I  have  concluded  to  request  of  the 
House  of  Representatives,  as  I  now  do,  that  a  new 
inquiry  may  without  delay  be  instituted  in  some 
mode,  the  most  effectual  for  an  accurate  and  thorough 
investigation;  and  I  will  add,  that  the  more  com 
prehensive  it  is,  the  more  agreeable  will  it  be  to  me. 

I  cannot,  however,  but  take  the  liberty  of  assuring 
the  House  that  a  like  plan  to  that  which  was  pursued 
in  the  last  session  will  never  answer  the  purpose  of  a 
full  and  complete  inquiry,  while  it  would  lay  on  me 
a  burthen,  with  which  neither  a  proper  discharge  of 
the  current  duties  of  my  office,  nor  the  present  state 
of  my  health,  is  compatible.  The  unfavorable  effect 
upon  the  business  of  the  Department  of  the  very  con 
siderable  portion  of  my  time  which  was  engrossed  by 
the  inquiry  of  the  last  session  has  not  yet  entirely 
ceased. 

With  perfect  respect,  I  have  the  honor  to  be,  etc. 


LOAN 

Communicated  to  the  House  of  Representatives,  February  25,  1794. 

Mr.  Sedgwick,  from  the  committee  appointed  to 
report  whether  any,  and  what,  sum  may  be  neces 
sary  to  be  loaned  for  the  purpose  of  carrying  on  the 
public  service  for  the  year  one  thousand  seven  hund 
red  and  ninety-four,  made  the  following  report: 


180  Alexander  Hamilton 

That,  in  their  opinion,  it  is  expedient  that  the  President 
be  authorized  to  borrow,  on  the  credit  of  the  United  States, 
a  sum  not  exceeding  one  million  dollars,  if,  in  his  opinion, 
the  public  service  shall  require  it. 

PHILADELPHIA,  February  22,  1794. 
SIR: 

A  committee  of  the  House  of  Representatives,  having  in 
charge  "to  report  whether  any,  and  what,  sum  may  be 
necessary  to  be  loaned  for  the  purpose  of  carrying  on  the 
public  service  for  the  year  1794,"  have  directed  me  to  re 
quest  of  you  answers  to  the  following  questions. 

1.  Whether  money  collected  on  account  of  the  United 
States,  and  deposited  in  banks,  is,  from  the  time  of  de 
posit,  considered  as  in  the  Treasury. 

2.  Are  any,  and,  if  any,  what,  means  necessary  to  sub 
ject  money,  so  deposited,  to  the  control  of  the  Treasurer? 

3.  In  case  money,  so  deposited,  is  not  considered  as  in 
the  Treasury  from  the  time  of  deposit,  who  is,  from  that 
time,  until  it  passes  into  the  Treasury,  responsible  to  the 
United  States? 

4.  Is  any  money  now  so  deposited,  and,  if  any,  is  the 
probable  amount  such  as  to  render  a  present  provision  for 
a  loan  inexpedient  or  unnecessary? 

With  much  esteem,  etc. 

THEODORE  SEDGWICK. 

The  Honorable  the  Secretary 
of  the  Treasury. 

TREASURY  DEPARTMENT,  February  25,  1794. 

SIR: 

The  following  are  answers  to  the  questions  stated 
in  your  letter  of  the  226.  instant,  viz.  : 

Answer  to  question  the  first. 

All  moneys  collected  on  account  of  the  United 


Loans  181 

States,  and  deposited  in  banks,  to  the  credit  of  the 
Treasurer,  are  considered  as  in  the  Treasury  from  the 
time  of  deposit.  The  steady  course  with  regard  to 
the  standing  revenue  is,  that  the  money  deposited 
in  banks  passes  immediately  to  the  credit  of  the 
Treasurer.  But  it  is  necessary,  to  discharge  the 
payers,  that  receipts  of  the  Treasurer  should  be  en 
dorsed  upon  warrants  signed  by  the  Secretary, 
countersigned  by  the  Comptroller,  and  registered  by 
the  Register,  which  is  the  course  regularly  observed. 

Answer  to  question  the  second. 

After  moneys  are  deposited  in  banks  to  the  credit 
of  the  Treasurer,  they  are  in  his  control,  though  they 
may  not  legally  be  disbursed  but  upon  warrants  of 
the  above  description.  If  deposited  without  passing, 
in  the  first  instance,  to  the  credit  of  the  Treasurer, 
the  means  used  for  placing  them  in  his  custody  and 
disposal  are  warrants  of  the  like  kind. 

Answer  to  question  the  third. 

In  respect  to  any  moneys  of  the  United  States 
deposited  in  banks,  but  not  passed  to  the  credit  of 
the  Treasurer,  the  banks  are  considered  as  directly 
responsible  to  the  United  States;  in  the  case  of  de 
posits  to  the  credit  of  the  Treasurer,  they  are  re 
sponsible,  in  the  first  instance,  to  him ;  ultimately,  to 
the  United  States. 

Answer  to  question  the  fourth. 

Only  two  cases  are  recollected,  in  which  moneys 
of  the  United  States  may  be  considered  as  having 
been  deposited  in  bank,  without  passing,  in  the  first 
instance,  to  the  account  of  the  Treasurer.  These  re 
late — 


1 82  Alexander  Hamilton 

1.  To  the  proceeds  of  foreign  bills  sold  for  the 
Government,  and  received  by  the  bank  (all  accounts 
of  which  are  finally  closed). 

2.  To  the  sum  of  two  hundred  thousand  dollars, 
being  the  only  sum  now  so  deposited,  which  arises  from 
the  last  loan  had  of  the  bank.     It  is  left  (subject  to 
the  eventual  decision  of  the  Legislature)  as  an  offset 
against  the  second  instalment  of  the  two-million  loan 
from  the  bank.     The  effect  of  the  operation  will  be 
this:     An  interest  of  six  per  cent.,  payable  to  the 
bank,  upon  the  instalment,  will  be  extinguished,  from 
the  3ist  of  December  last,  by  an  interest  of  five  per 
cent.,  payable  to  the  bank,  upon  the  sum  borrowed 
of  itself,  and  left  in  deposit.     And  it  has  been  en 
deavored,  thereby,  to  preserve  consistency  and  regu 
larity  in  the  arrangements  of  the   Treasury.     The 
first  instalment,  by  leaving  in  deposit  an  equal  sum 
of  the  proceeds  of  foreign  bills,  was  considered  as 
effected  on  the  3ist  of  December,  1792,  though  there 
was  not  power  to  consummate  the  payment  till  some 
months  after.     Hence  it  becomes  regular,  that  each 
succeeding  instalment  should  be  paid  on  the  last  of 
December  of  each  year.     The  provisional  measure 
thus  adopted  was  the  only  expedient  in  the  power 
of  the  Treasury  to  reconcile,  as  far  as  practicable, 
considerations  relative  to  the  public  interest  and 
credit,  with  legality  of  procedure.     Neither  the  sum 
in  deposit,  on  the  one  hand,  nor  the  instalment  pay 
able  to  the  bank,  on  the  other,  is  brought  into  the 
probable  state  of  cash,  lately  presented  to  the  House 
of  Representatives,  because  they  balance  each  other, 
and  leave  the  result  the  same. 


Hamilton  to  Washington  183 

There  are  no  existing  sources  from  which  moneys 
can  come  into  bank,  on  account  of  the  United  States, 
except  from  the  proceeds  of  the  revenue,  which,  as 
far  as  known,  are  comprised  in  the  statement  before 
the  House  of  Representatives.  So  that  there  is  no 
resource,  but  a  loan,  which  can  supply  the  deficit  of 
a  receipt,  in  the  course  of  the  present  and  succeeding 
quarter,  compared  with  the  expenditure.  Without 
one,  a  failure  in  the  public  payments  is  inevitable. 

If  what  has  been  said  should  not  give  the  commit 
tee  all  the  light  they  desire,  it  is  imagined  that  per 
sonal  explanations  would  lead  more  fully  to  their 
object,  than  the  course  of  written  interrogatories 
and  answers,  which  can  only  partially  embrace  the 
subject,  and  may  procrastinate  a  right  understand 
ing  of  it.  I  am,  sir,  etc., 

ALEXANDER  HAMILTON. 

THEODORE  SEDGWICK,  Esq., 

Chairman  of  a  Committee. 


HAMILTON    TO    WASHINGTON 

March  24,  1794. 

SIR: 

A  committee  of  the  House  of  Representatives,  ap 
pointed  to  inquire  into  the  state  of  the  Treasury 
Department,  is  charged,  among  other  things,  to  in 
quire  into  the  authorities  from  the  President  to  the 
Secretary  of  the  Treasury  respecting  the  making 
and  disbursement  of  the  loans  made  under  the  acts 
of  the  4th  and  i2th  August,  1790.  You  will  per 
ceive  by  the  inclosed  copy  of  a  paper  of  this  date, 


184  Alexander  Hamilton 

delivered  to  the  committee,  the  opinion  I  entertain 
of  the  proper  limits  of  a  legislative  inquiry  on  that 
subject. 

But,  in  the  event  of  a  determination  that  the  in 
quiry  should  be  general,  it  becomes  proper  to  fix 
with  the  President  the  true  view  of  facts. 

The  real  course  of  the  transaction  has  been  this. 
Before  I  made  the  disposition  of  any  loan,  I  regu 
larly  communicated  to  the  President  my  ideas  of  the 
proper  disposition,  designating  how  much  it  would 
be  expected  to  pay  to  France — how  much  to  draw  to 
the  United  States — and  always  received  his  sanction 
for  what  was  adopted  and  afterwards  carried  into 
execution.  The  communication  and  the  sanction 
were  verbal  whenever  the  President  was  at  the  seat 
of  government.  In  a  case  of  absence,  they  were  in 
writing.  This  will  appear  from  my  letters  of  the 
loth  and  i4th  April,  1791,  and  from  the  President's 
answer  of  the  yth  of  May,  following.  My  letters  of 
the  2 gth  July  and  22d  September,  1791,  and  of  the 
27th  August  and  22d  September,  1792,  contain  a 
further  illustration  of  the  general  spirit  of  proceed 
ing  in  the  case,  in  regard  to  the  consultation  of  the 
President. 

The  sanctions  of  the  President  were  sometimes  ex 
pressly,  and  always,  as  I  conceived,  in  their  spirit, 
founded  in  a  material  degree  in  the  confidence  that 
the  measures  proposed  were  guided  by  a  just  estim 
ate  on  my  part  of  circumstances  which,  from  situa 
tion,  must  have  been  best  known  to  me,  and  that 
they  would  be  always  in  conformity  to  the  law. 

With  the  most  perfect  respect,  etc. 


Hamilton  to  a  Committee  185 

HAMILTON    TO    A   COMMITTEE    OF    CONGRESS 

April  i,  1794. 

In  the  course  of  the  present  examination,  respect 
ing  the  point  of  authority  under  which  any  portion 
of  the  moneys  borrowed  abroad  had  been  drawn  into 
the  United  States,  the  Secretary  of  the  Treasury  did 
make  the  following  question: 

"I  ask  the  committee  appointed  to  inquire  into 
the  state  of  the  Treasury  Department,  whether  they 
expect  from  the  Secretary  of  the  Treasury  the  pro 
duction  of  any  authorities  from  the  President  to 
him,  in  reference  to  the  loans  made  under  the  acts 
of  the  4th  and  i2th  of  August,  1790,  except  such  as 
regard  merely  the  making  of  said  loans,  and  the  ap 
plication  and  disbursement  of  such  part  of  the  pro 
ceeds  of  those  loans  as  were  to  be  disbursed  in 
foreign  countries. 

"  I  object  to  the  being  required  to  produce  any 
other  authorities  than  those  excepted,  for  the  follow 
ing  reasons,  viz. : 

"  i  st.  Because  it  results,  from  the  constitution  of 
the  Treasury  Department,  that  all  receipts  and  ex 
penditures  of  public  money,  within  the  United 
States,  must  pass  through  that  Department,  under 
the  sanction  of  warrants  from  the  Secretary,  counter 
signed  by  the  Comptroller,  and  registered  by  the 
Register;  consequently,  whenever  a  loan  is  made, 
either  abroad  or  at  home,  on  account  of  the  United 
States,  destined  for  disbursement  within  the  United 
States,  it  becomes,  ex  officio,  the  province  of  the 
Treasury  Department  to  draw  the  proceeds  of  such 


1 86  Alexander  Hamilton 

loan  into  the  Treasury,  and  to  disburse  from  thence, 
according  to  law. 

"  2d.  Because,  when  it  once  appears  that  the 
President  has  constituted  the  head  of  a  department 
his  agent,  for  any  general  purpose,  intrusted  to  him 
by  law,  all  intermediate  authorities  from  the  Presi 
dent  to  the  agent,  being  conformable  with  law,  are 
to  be  presumed.  The  proper  inquiry  for  the  Legis 
lature  must  be,  whether  the  laws  have  been  duly 
executed  or  not;  if  they  have  been  duly  executed, 
the  question  of  sufficiency  or  deficiency  of  authority, 
from  the  President  to  his  agent,  must  be,  to  the 
Legislature,  immaterial  and  irrelevant.  That  ques 
tion  must,  then,  be  a  matter  purely  between  the 
President  and  the  agent,  not  examinable  by  the 
Legislature,  without  interfering  with  the  province 
of  the  Chief  Magistrate,  to  whom  alone  the  respons 
ibility  is. 

"All  authority  from  the  President  to  do  any 
thing  not  warranted  by  the  laws  of  the  4th  and  1 2th 
of  August,  is  disclaimed.  A  complete  responsibility 
for  the  due  and  faithful  execution  of  those  laws  is 
admitted  to  rest  on  the  head  of  the  Department. 
He  claims  no  protection  from  any  instruction  or  au 
thority  of  the  President,  for  any  thing  which  may 
have  been  irregular  or  wrong,  but  he  respectfully 
conceives  that  the  competency  of  his  authority  from 
the  President  to  do,  what  being  done,  is  conformable 
with  the  laws,  is  not,  under  the  circumstances  of  the 
case,  a  proper  object  of  legislative  inquiry." 

Upon  the  consideration  of  which  question,  the 
Committee  came  to  the  following  resolution: 


Hamilton  to  a  Committee  187 

"  Resolved,  That  the  Secretary  of  the  Treasury  be 
requested  to  state  to  the  committee,  by  what  au 
thority  any  portion  of  the  moneys  borrowed  abroad 
have  been  drawn  to  the  United  States." 

In  consequence  of  which  resolution  the  Secretary 
of  the  Treasury  laid  before  the  committee  a  paper  in 
the  following  words: 

HAMILTON   TO    A   COMMITTEE    OF   CONGRESS 

April  i,  1794. 

Principles  and  course  of  proceeding  with  regard  to  the 
disposition  of  the  moneys  borrowed  abroad,  by 
virtue  of  the  acts  of  the  4th  and  I2th  of  August, 
1790,  as  to  the  point  of  authority. 

It  was  conceived  by  the  Secretary  of  the  Treasury 
to  be  a  clear  principle,  resulting  from  the  spirit  of 
the  act  constituting  the  Treasury  Department,  and 
from  the  several  provisions  of  that  act,  collectively 
considered,  that  all  public  moneys  once  obtained, 
and  destined  for  disbursement  within  the  United 
States,  came,  of  course,  under  the  direction  of  the 
officers  of  that  Department,  according  to  their 
respective  functions,  and  that  no  special  authority 
extrinsic  to  the  Department  was,  in  strictness,  neces 
sary  to  enable  them  to  draw  money,  from  whatever 
source  originating,  into  the  Treasury,  or  to  issue 
them  thence  for  the  purposes  designated  by  law. 

It  was  also  conceived  by  him  to  be,  though  a  less 
clear  principle,  one  most  agreeable  to  the  true  spirit 
of  the  constitution  of  the  Department,  as  well 
as  essential  to  the  preservation  of  order  and  due 


1 88  Alexander  Hamilton 

accountability  in  the  money  transactions  of  the  coun 
try,  that  even  moneys  procured  abroad,  and  to  be 
disbursed  abroad,  were,  as  to  their  application,  to 
be  under  the  direction  of  the  same  Department. 

Under  the  influence  of  these  principles,  thus  en 
tertained  with  different  degrees  of  assurance  (the 
President  having  determined  to  place  the  procuring 
of  the  loans  under  the  direction  of  the  Secretary  of 
the  Treasury),  the  following  course  of  proceeding 
was  pursued : 

The  Secretary  obtained  from  the  President,  in  the 
first  place,  a  general  commission  to  him  to  make  the 
loans  authorized  by  the  two  acts  of  the  4th  and  i2th 
of  August.  A  copy  of  this  commission  was  com 
municated  to  the  House  of  Representatives  in  the 
last  session.  No.  i  is  dated  the  28th  of  August. 

He  also  obtained  from  the  President  an  instruc 
tion,  dated  same  day,  to  guide  and  justify  him — ist, 
with  regard  to  the  person  to  be  employed  in  Europe 
in  negotiating  the  loans;  26.,  with  regard  to  the  ex 
tent  to  which  the  loans  under  the  first  act,  and  pay 
ments  on  account  of  the  foreign  debt,  should  be 
carried,  at  all  events,  exclusively  of  the  considera 
tion  of  the  advantageousness  of  the  terms  of  the 
loans. 

Nevertheless,  from  the  special  connection  of  the 
President  with  the  subject,  owing  to  the  authority  to 
borrow  being  immediately  vested  in  him;  from  the 
circumstance  of  the  existence  of  a  particular  dis 
cretion  to  be  exercised  by  the  President  as  to  anticip 
ated  payments  of  the  foreign  debt,  and  from  the 
official  relation  of  each  head  of  a  department  to  the 


Hamilton  to  a  Committee  189 

President,  the  Secretary  of  the  Treasury  considered 
it  as  his  duty,  from  time  to  time,  to  submit  the  dis 
positions  of  each  loan  to  the  consideration  of  the 
President,  with  his  reasons  for  such  disposition,  and 
to  obtain  the  sanction  of  the  President  previous  to 
carrying  it  into  effect,  which  was  always  had. 

The  communications  to  the  President  and  his 
sanctions  were  for  the  most  part  verbal.  Two  ex 
ceptions  appear,  from  letters  (herewith  shown)  of 
the  Secretary  to  the  President,  of  the  loth  and  i/j-th 
of  April,  and  22d  of  September,  1791,  and  from  the 
President  to  him  of  the  yth  of  May,  1791,  relating  to 
a  case  of  absence  from  the  seat  of  government. 
These  letters  are  evidence  of  the  course  and  spirit  of 
proceeding. 

It  is  to  be  understood  that  the  sanctions  of  the 
President  were  always  bottomed  upon  the  representa 
tions  of  the  Secretary,  and  were  always  expressly 
or  tacitly  qualified  with  this  condition,  that  "what 
ever  was  to  be  done  was  to  be  agreeable  to  the  laws. " 

Whereupon  the  committee  came  to  the  following 
resolution : 

"Resolved,  That  it  would  be  satisfactory  to  the 
committee,  that  the  papers  submitted  to  them  April 
i,  1794,  by  the  Secretary  of  the  Treasury,  respecting 
the  point  of  authority  under  which  moneys  borrowed 
abroad  have  been  drawn  to  the  United  States, 
should  be  presented  to  the  President  of  the  United 
States,  and  that  the  Secretary  should  obtain  from 
him,  concerning  the  same,  such  declaration  as  the 
President  may  think  proper  to  make." 


190  Alexander  Hamilton 

WASHINGTON   TO    HAMILTON 

Tuesday,  April  8,  1794. 

DEAR  SIR: 

Annexed  to  your  statement  of  "  Principles  and  Course  of 
Proceedings,"  I  have  given  the  certificate  required. 
I  am,  yours  always, 

GEO.  WASHINGTON. 


WASHINGTON   TO    HAMILTON 

PHILADELPHIA,  April  8,  1794. 

SIR: 

I  cannot  charge  my  memory  with  all  the  particulars 
which  have  passed  between  us  relative  to  the  disposition 
of  the  money  borrowed.  Your  letters,  however,  and  my 
answer,  which  you  refer  to  in  the  foregoing  statement, 
and  lately  reminded  me  of,  speak  for  themselves,  and 
stand  in  need  of  no  explanation. 

As  to  verbal  communications,  I  am  satisfied  that  many 
were  made  by  you  to  me  on  this  subject;  and,  from  my 
general  recollection  of  the  course  of  proceedings,  I  do  not 
doubt  that  it  was  substantially  as  you  have  stated  it  in  the 
annexed  paper,  and  that  I  have  approved  of  the  measures 
which  you  from  time  to  time  proposed  to  me  for  disposing 
of  the  loans,  upon  the  condition  that  what  was  to  be  done 
by  you  should  be  agreeable  to  the  laws. 

I  am,  etc. 


HAMILTON    TO    WASHINGTON 

PHILADELPHIA,  April  9,  1794. 

SIR: 

I  have  analyzed  the  declaration  which  you  have 
been  pleased  to  make  upon  the  copy  of  the  paper  of 


Hamilton  to  Washington  191 

the  first  instant,  delivered  by  me  to  the  Committee 
of  Inquiry  into  the  State  of  the  Treasury  Depart 
ment,  and  find,  with  regret,  that  the  terms  used  are 
such  as  will  enable  those  who  are  disposed  to  con 
strue  every  thing  to  my  disadvantage  to  affirm, 
"that  the  declaration  of  the  President  has  entirely 
waived  the  main  point,  and  does  not  even  manifest 
an  opinion  that  the  representation  of  the  Secretary 
of  the  Treasury  is  well  founded." 

To  this  it  would  be  added,  that  the  reserve  of  the 
President  is  a  proof  that  he  does  not  think  that 
representation  true,  else  his  justice  would  have  led 
him  to  rescue  the  officer  concerned  even  from  sus 
picion  on  the  point. 

That  this  will  be  the  interpretation  put  upon  your 
declaration  I  have  no  doubt;  and,  in  justice  to  my 
self,  I  cannot  forbear  to  make  this  impression  known 
to  you,  and  to  bring  the  declaration  under  your 
revision. 

I  am  the  more  certain  that  this  construction  will 
be  put  upon  the  fact,  from  what  has  heretofore 
taken  place.  In  the  course  of  the  discussion  of  the 
last  session,  an  argument  of  this  kind  was,  in  private, 
urged  against  me:  "If  Mr.  Hamilton  had  really 
acted  by  the  authority  of  the  President,  or  in  due 
communication  with  him,  would  not  the  President 
take  some  method,  either  directly  to  Mr.  Madison, 
or  through  Mr.  Jefferson  or  Mr.  Randolph,  to  make 
known  to  him  that  this  ground  of  accusation  did  not 
exist?  His  not  doing  it,  which  may  be  inferred 
from  Mr.  Madison's  urging  the  point,  is  a  proof  that 
there  was  no  co-operation  on  his  part." 


192  Alexander  Hamilton 

In  addition  to  this,  I  have  learnt,  from  an  au 
thentic  source,  that  a  particular  gentleman,  sup 
posed  to  possess  good  opportunities  of  information, 
has  intimated,  in  a  manner  to  induce  a  belief  of  its 
having  come  from  you,  that  it  never  was  your  inten 
tion  that  any  of  the  loans  which  were  made  should 
have  had  reference  to  the  act  making  provision  for 
the  reduction  of  the  public  debt,  and  that  you  never 
knew  any  thing  of  the  operation  while  it  was  going 
on. 

Under  all  that  has  happened,  sir,  I  cannot  help 
entertaining,  and  frankly  expressing  to  you,  an  ap 
prehension  that  false  and  insidious  men,  whom  you 
may  one  day  understand,  taking  the  advantage  of 
the  want  of  recollection,  which  is  natural  when  the 
mind  is  habitually  occupied  with  a  variety  of  im 
portant  objects,  have  found  means,  by  artful  sugges 
tions,  to  infuse  doubts  and  distrusts  very  injurious 
to  me. 

My  consciousness  of  what  has  been  the  real  tenor 
of  my  conduct,  and  my  conviction  of  the  fairness 
and  rectitude  of  your  mind,  compel  me  to  this 
conclusion. 

Upon  this,  as  upon  every  other  occasion,  my  de 
sire  is  to  encounter,  directly  and  without  detour, 
whatever  embarrassment  may  stand  in  my  way.  If, 
contrary  to  what  I  understood  from  Mr.  Lear,  during 
the  discussion  of  the  matter  in  Congress,  and  in 
ferred  from  the  late  conversations  with  you,  the  af 
fair  does  not  stand  well  in  your  mind,  I  request  the 
opportunity  of  a  full  and  free  conference  on  the 
subject,  to  recapitulate  and  go  over  all  the  circum- 


Hamilton  to  Washington  193 

stances  which  have  occurred,  in  the  hope  of  recalling 
to  your  memory  what  may  have  escaped  it,  and 
with  a  wish  to  abide  the  result  in  an  explicit  form- 
that  is,  by  a  declaration  which  shall  render  the  main 
fact  unambiguous,  or  shall  record  the  doubt. 

As,  on  the  one  hand,  I  expect  what  is  due  to  the 
situation,  so,  on  the  other,  I  seek  no  palliation  of 
delinquency,  no  cover  for  any  defect  of  conduct. 

The  situation  is  indeed  an  unpleasant  one.  Hav 
ing  conducted  an  important  piece  of  public  business 
in  a  spirit  of  confidence — dictated  by  an  unqualified 
reliance,  on  the  one  hand,  upon  the  rectitude,  candor, 
and  delicacy  of  the  person  under  whom  I  was  acting ; 
on  the  other,  by  a  persuasion  that  the  experience  of 
years  had  secured  to  me  a  reciprocal  sentiment 
(whatever  imperfections  it  may  have  otherwise  dis 
covered)  ;  and  by  the  belief,  likewise,  that,  however 
particular  instances  might  be  forgotten,  the  general 
course  of  proceeding  in  so  important  an  affair  could 
not  but  be  remembered  —  I  did  not  look  for  a 
difficulty  like  that  which  now  seems  to  press  me. 
Knowing,  too,  that  there  existed  in  my  written 
communications  with  the  President  (not  only  those 
which  have  been  specified,  but  others),  so  many 
direct  and  indirect  indications  of  what  was  truly  the 
course  pursued,  I  still  less  apprehended  a  difficulty 
of  that  nature  when  the  occasion  for  explanation 
should  occur. 

Not  seeking  to  escape  responsibility  for  any  im 
proper  execution  of  the  laws — if  any  has  happened — 
I  do  not  imagine  that  want  of  immediate  authority 
from  the  President  to  do  what  they  would  justify, 


VOL.    III.— 13. 


194  Alexander  Hamilton 

would  be  suffered  to  remain  (the  appeal  being  made 
to  him)  a  topic  of  objection  to  my  conduct. 

In  the  freedom  of  these  remarks  I  flatter  myself, 
sir,  that  you  will  perceive  nothing  but  that  just 
sensibility  which  a  man  of  honor,  who  thinks  his 
veracity  exposed  to  question,  ought  to  feel ;  and  that 
you  will  be  persuaded  I  continue  yet  to  retain,  un- 
diminished,  all  that  respect  which  a  long-established 
conviction  of  the  existence  of  an  upright  and  vir 
tuous  character  ought  to  inspire. 

With  this  sentiment,  I  have  the  honor,  etc. 


HAMILTON   TO   WASHINGTON 

TREASURY  DEPARTMENT,  April  25,  1794. 

I  beg  leave,  by  way  of  explanation,  to  submit  the 
grounds  of  my  opinion,  that  the  President  may  vary 
his  instructions  of  the  8th  of  August  last,  in  refer 
ence  to  the  application  of  the  last  loan  obtained  in 
Holland. 

A  summary  of  the  preceding  transactions  will 
serve  to  throw  light  upon  the  subject. 

The  President,  by  his  commission  of  the  28th  of 
August,  1790,  gave  full  power  to  the  Secretary  of 
the  Treasury  to  make  the  whole  of  the  two  loans 
contemplated  by  the  acts  of  the  4th  and  the  1 2th  of 
August. 

When,  in  the  beginning  of  June  last,  certain  con 
siderations  rendered  it,  in  my  judgment,  expedient 
to  obtain  a  further  loan;  I  concluded  to  address 
myself  to  the  President,  not  for  want  of  power  to 
proceed  in  the  business,  but  to  obtain  the  sanction 


Hamilton  to  Washington  195 

of  his  opinions  and  instructions  as  to  the  eligibility 
of  the  measure.  This  will  appear  from  my  letter  of 
the  third  of  that  month. 

After  some  explanatory  communications,  I  re 
ceived  from  the  President  his  letter  of  the  2yth  of 
July,  informing  me  of  the  shape  the  business  had 
taken  in  his  mind. 

On  the  basis  of  that  letter,  I  prepared  the  instruc 
tions  of  the  8th  of  August,  which  I  considered 
merely  as  directions  to  me,  from  the  President,  in 
the  execution  of  the  general  power  of  the  28th  of 
August,  1790,  to  be  understood  in  connection  with 
the  letter  of  the  27th  of  July. 

The  proposition  in  my  report  of  the  i$th  of  June 
was,  that  the  proposed  loan  should  be  made  upon 
the  authority  of  both  acts,  and  the  letter  of  the 
President  just  mentioned  precisely  declares  he  did  not 
intend  by  separate  instructions  to  prevent  the  loans 
from  being  carried  on  without  distinction  in  Holland. 

Accordingly,  I  sent  no  new  powers  for  making  a 
further  loan,  but  merely  an  additional  instruction  to 
make  a  loan  of  three  millions  of  florins,  on  the  basis 
of  the  former  powers.  This  additional  instruction, 
too,  made  no  special  reference  to  either  act,  but  left 
the  matter  to  proceed  as  before  without  distinction. 

The  consequence  will  be  that  the  loan,  as  in  all 
preceding  cases,  will  be  founded  upon  both  the  acts. 
I  send  for  your  inspection  all  the  contracts  hereto 
fore  made,  as  the  evidence  of  what  will  be  the  form 
of  the  one  not  yet  forwarded ;  all  of  which  expressly 
and  indiscriminately  refer  to  both  the  acts. 

The  inference  is,  that  according  to  the  contract 


Alexander  Hamilton 

itself  (the  formal  obligatory  act),  the  loan  will  be 
placed  upon  the  joint  foundation  of  the  two  acts, 
equally  applicable,  therefore,  to  the  purpose  of 
either. 

This  being  the  case,  it  is  in  my  mind  a  clear  pro 
position  that  the  money  remains  in  that  state  liable 
to  be  applied  according  to  either  or  both  the  acts, 
till  one  of  two  things  happens — an  actual  invest 
ment,  or  the  being  carried  in  the  books  of  the  Treas 
ury  specifically  to  the  account  of  the  particular 
appropriation. 

It  appears  to  me  that  there  are  but  two  cir 
cumstances  which  can  attach  irrevocably  a  similar 
fund  to  a  particular  destination — either  its  being 
so  attached  in  its  original  creation  by  the  formal 
obligatory  act  (to  wit,  the  creation  of  the  loan),  or  its 
having  received  in  the  Treasury  its  ultimate  form 
by  being  carried  to  the  account  of  the  particular 
appropriation.  This  last,  when  the  fund  in  its 
creation  is  liable  to  different  destinations,  is,  as  I 
suppose,  the  only  thing  which  consummates  and 
fixes  the  precise  destination.  It  is  the  record,  so  to 
speak,  of  the  sentence  or  direction  of  the  law,  ascer 
taining  its  application. 

If  this  position  be  as  solid  as  I  believe  it  to  be,  it 
will  follow  that  all  collateral  instructions  of  the 
President  intervening  between  his  original  power  to 
make  the  loan  and  the  final  application  of  the  loan 
are  mere  directions  to  the  Secretary  of  the  Treasury, 
binding  on  him  until  they  are  revoked,  but  revocable 
at  pleasure  by  the  President  until  they  are  definitely 
acted  upon  at  the  Treasury. 


Hamilton  to  Washington  197 

This  is  my  view  of  the  subject,  for  troubling  the 
President  with  which  I  have  no  other  motive  than 
merely  to  explain  the  ground  of  an  important 
opinion. 

I  proceed  now  to  execute  the  order  of  the  Presi 
dent  contained  in  his  letter  of  yesterday. 

The  embarrassments  which,  I  suppose,  may  pos 
sibly  arise  from  fixing  at  this  time  the  destination  of 
the  fund,  are  connected  with  the  following  con 
siderations  : 

The  laws,  except  by  the  means  of  loans,  make  no 
provision  for  the  payment  of  any  part  of  the  prin 
cipal  of  the  foreign  debt.  Instalments  of  the  prin 
cipal  of  the  Dutch  debt  are  falling  due  yearly;  the 
same  is  the  case  of  the  debt  to  France,  deferring  the 
computed  anticipations,  as  has  been  heretofore  done. 
Perhaps  it  may  become  the  policy  of  the  country,  in 
a  short  time,  to  accelerate  in  the  latter  case. 

The  state  of  European  affairs  forbids  a  reliance  on 
further  loans  there.  The  actual  situation  of  the 
United  States  (and,  a  fortiori,  its  possible  one)  is 
likely  to  call  for  all  the  aid  of  domestic  loans  which 
is  obtainable  for  domestic  purposes.  This  resource, 
therefore,  could  not  be  depended  upon  as  a  sub 
stitute  for  foreign  loans  for  foreign  objects ;  still  less, 
and  for  the  same  among  other  reasons,  could  addi 
tional  taxation  be  counted  upon. 

Our  credit,  therefore,  and  in  certain  events  our 
security  in  a  degree,  may  depend  on  retaining  a  part 
of  the  resource  in  question  in  a  situation  to  come  in 
aid  of  both.  Our  credit  entirely,  and  our  security 
in  a  very  small  degree,  are  of  far  greater  consequence 


198  Alexander  Hamilton 

than  the  savings  to  be  made  by  the  investment  of 
1,200,000  dollars  in  purchases. 

Past  experience  admonishes  to  caution.  The  last 
loan  of  a  million  of  florins,  and  the  present  one  of 
three  millions,  are  in  some  sort  accidents.  Ante 
cedent  intelligence  has  in  each  case  forbidden  the 
expectation  of  either,  as  the  President  will  see  from 
the  letters  herewith  transmitted.  Had  these  not 
happened,  and  had  the  moneys  originally  drawn  to 
this  country  for  purchases  been  hastily  so  invested, 
our  credit  would  in  all  probability  have  been  lost; 
and  things  which  we  believe  it  of  importance  to  have 
been  done  would  have  been  impracticable. 

A  considerable  defalcation  of  revenue  this  year 
seems  probable.  I  feel,  in  a  manner  not  less  inter 
esting  to  my  own  reputation  than  to  the  public  in 
terest,  the  advantage  of  extensive  purchases  at  the 
present  juncture.  And  though  I  think  the  oppor 
tunity  will  not  escape,  it  enters  into  the  plan  which 
I  should  approve — to  proceed  gradually  and  cir 
cumspectly  in  availing  ourselves  of  the  advantage. 
But  I  do  not  incline  either  wholly  to  tie  up  the  funds 
at  this  time,  or  to  precipitate  its  application  to  that 
single  object.  I  think  the  matter  had  better  be 
left  open,  to  be  governed  by  circumstances  as  things 
shall  unfold. 

It  appears  to  me  better,  at  the  hazard  of  some 
criticism,  to  waive  or  defer  an  advantage  inferior  in 
magnitude,  rather  than  incur  a  probable  risk  of  dis 
advantage  of  much  greater  magnitude. 

It  appears  by  the  letter  from  the  Commissioners 
announcing  the  loan,  already  communicated  to  the 


Public  Credit  199 

President,  that  the  receipts  on  account  of  it  may  be 
considerably  protracted.  This  is  a  circumstance  of 
some  weight  in  the  decision. 

I  submit  these  considerations  with  all  deference  to 
the  decision  of  the  President,  and  have  the  honor  to 
be,  etc.  

HAMILTON   TO   THE   SPEAKER   OF   THE   HOUSE   OF 
REPRESENTATIVES 

December  i,  1794. 

SIR: — I  beg  leave,  through  you,  to  make  known  to 
the  House  of  Representatives,  that  I  have  signified 
to  the  President  of  the  United  States  my  intention 
to  resign  my  office  of  Secretary  of  the  Treasury  on 
the  last  day  of  January  next.  I  make  this  com 
munication  in  order  that  an  opportunity  may  be 
given,  previous  to  that  event,  to  institute  any  fur 
ther  proceeding  which  may  be  contemplated,  if  any 
there  be,  in  consequence  of  the  inquiry  during  the 
last  session  into  the  state  of  this  Department. 

With  perfect  respect,  etc. 


PUBLIC   CREDIT 

Communicated  to  the  Senate,  January  16  and  21,  1795. 

TREASURY  DEPARTMENT,  January  16,  1795. 

SIR: — I  beg  leave,  through  you,  to  inform  the  Sen 
ate  that,  pursuant  to  the  second  section  of  the  act 
establishing  the  Treasury  Department,  which  ex 
pressly  makes  it  the  duty  of  the  Secretary  of  the 
Treasury  "to  digest  and  prepare  plans  for  the 


200  Alexander  Hamilton 

improvement  and  management  of  the  revenue  and 
for  the  support  of  public  credit,"  I  have  digested  and 
prepared  a  plan,  on  the  basis  of  the  actual  revenues, 
for  the  further  support  of  public  credit,  which  is 
ready  for  communication  to  the  Senate. 

This  plan  embraces  a  further  provision  for  the 
subscribed  debt;  a  provision  for  converting,  with 
the  consent  of  the  creditors,  the  foreign  into  the 
domestic  debt ;  a  provision  for  augmenting  the  sink 
ing  fund,  so  as  to  render  it  commensurate  with  the 
entire  debt  of  the  United  States;  suggestions  for 
giving  effect  to  the  act  of  the  last  session,  granting  a 
million  of  dollars  for  the  purposes  of  foreign  inter 
course  ;  with  some  auxiliary  propositions. 

With  perfect  respect,  I  have  the  honor  to  be, 
Sir,  your  obedient  servant, 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury. 

To  the  Vice-President  of  the  United  States 

and  President  of  the  Senate. 

* 

TREASURY  DEPARTMENT,  January  20,  1795. 

SIR: — Agreeably  to  the  order  of  the  Senate,  I  have 
the  honor  to  transmit  the  plan  for  the  support  of 
public  credit,  announced  in  my  letter  of  the  i6th 
instant,  together  with  sundry  statements  connected 
with  it ;  and  to  be 

Your  most  obedient  and  humble  servant, 

A.  HAMILTON. 

To  the  Vice-President  of  the  United  States 
and  President  of  the  Senate. 


Public  Credit  201 

The  Secretary  of  the  Treasury  respectfully  makes 
the  following  report  to  the  Senate: 

The  President  of  the  United  States,  with  that 
provident  concern  for  the  public  welfare  which  char 
acterizes  all  his  conduct,  was  pleased,  in  his  speech 
to  the  two  Houses  of  Congress,  at  the  opening  of  the 
present  session,  to  invite  their  attention  to  the  adop 
tion  of  a  definitive  plan  for  the  redemption  of  the 
public  debt,  and  to  the  consummation  of  whatsoever 
may  remain  unfinished  of  our  system  of  public  credit, 
in  order  to  place  that  credit,  as  far  as  may  be  prac 
ticable,  on  grounds  which  cannot  be  disturbed,  and  to 
prevent  that  progressive  accumulation  of  debt,  which 
must  ultimately  endanger  all  government. 

It  was,  at  the  same  time,  very  justly  intimated 
that  the  period  which  has  elapsed  since  the  com 
mencement  of  our  fiscal  measures  (now  more  than 
four  years)  has  so  far  developed  our  resources  as  to 
open  the  way  to  the  important  work.  And  it  is 
matter  of  solid  consolation  that  the  result,  presenting 
a  state  of  our  finances  prosperous  beyond  expecta 
tion,  solicits  the  public  councils  to  enter,  with  zeal 
and  decision,  upon  measures  commensurate  with  the 
greatness  of  the  interests  to  be  promoted. 

Under  the  influence  of  this  conviction,  in  con 
formity  with  the  suggestions  of  the  President,  and 
pursuant  to  the  duty  which  the  constitution  of  the 
Department,  as  by  law  established,  enjoins  upon  the 
Secretary  of  the  Treasury,  he  has  employed  himself 
in  digesting  and  preparing  the  materials  of  a  plan 
for  the  attainment  of  the  invaluable  ends  which  are 


202  Alexander  Hamilton 

recommended.     And  he  now  respectfully  submits 
them  to  the  consideration  of  Congress. 

Toward  a  clear  and  distinct  conception  of  the 
means  necessary  to  the  accomplishment  of  those 
ends,  it  will  be  useful,  in  the  first  place,  to  review 
what  has  been  heretofore  done.  This  will  be  pre 
sented  under  three  heads: 

I.  The  revenues  which  have  been  established; 

II.  The  provisions  for  funding  the  debt,  and  for 
the  payment  of  interest  upon  it; 

III.  The  provisions  for  reimbursing  and  extin 
guishing  the  debt. 

I.  The  revenues  which  have  been  established  ap 
pear  in  the  following  acts : 

i st.  "An  act  for  laying  a  duty  on  goods,  wares, 
and  merchandises  imported  into  the  United  States," 
passed  June  the  ist,  1789.  This  act,  as  its  title  im 
ports,  lays  various  specific  and  ad- valorem  rates  on 
all  articles  (with  exception  of  a  few  useful  to  agri 
culture  and  manufactures)  imported  from  foreign 
countries.  The  lowest  ad-valorem  rate  is  five  per 
cent.,  with  a  discount  of  ten  per  cent,  in  favor  of  our 
own  bottoms.  The  duration  assigned  these  duties 
was  the  end  of  the  session  of  Congress  next  succeed 
ing  the  first  day  of  June,  1796. 

2d.  "An  act  imposing  duties  on  tonnage,"  passed 
July  20,  1789. 

This  act  lays  various  rates  of  duty  on  the  tonnage 
of  ships  and  vessels  entered  in  the  United  States  from 
foreign  countries,  and,  in  certain  cases,  in  one  part  of 
the  United  States  from  another. 


Public  Credit  203 

Its  duration  was  indefinite,  no  limit  having  been 
assigned. 

3d.  "An  act  imposing  duties  on  the  tonnage  of 
ships  and  vessels,"  passed  July  20,  1790. 

This  act  is  a  substitute  for  the  one  last  mentioned, 
preserving  the  same  rates  of  duty,  but  applying 
them,  in  some  instances,  differently.  It  is,  like  the 
former,  of  indefinite  duration. 

4th.  "  An  act  making  further  provision  for  the 
payment  of  the  debts  of  the  United  States,"  passed 
August  10,  1790. 

This  act  repeals,  after  the  last  of  December,  1790, 
the  duties  on  imported  articles,  laid  by  the  act  above 
cited,  and  substitutes  new  and  generally  increased 
rates,  specific  and  ad- valorem. 

The  lowest  ad-valorem  rate  in  this,  as  in  the 
former  act,  is  five  per  cent.;  but  the  number  of 
articles  to  which  it  applies  is  much  narrowed;  and, 
instead  of  a  discount  in  favor  of  our  own  bottoms, 
an  addition  of  ten  per  cent,  is  made  to  the  disad 
vantage  of  foreign  bottoms. 

The  number  of  free  articles  is  somewhat  extended 
in  further  encouragement  of  agriculture  and  manu 
factures. 

It  is  declared,  that  the  duties  laid  by  this  act  shall 
continue  till  the  debts  and  purposes  for  which  they  are 
appropriated  shall  be  satisfied;  reserving,  however,  a 
right  to  Congress  to  substitute  other  duties  or  taxes 
of  equal  value. 

5th.  "An  act  to  incorporate  the  subscribers  to 
the  Bank  of  the  United  States,"  passed  the  25th  of 
February,  1791. 


2O4  Alexander  Hamilton 

The  second  section  of  this  act  authorizes  the 
President  to  cause  a  subscription  to  be  made  to  the 
stock  of  the  bank,  on  account  of  the  United  States, 
to  the  amount  of  two  millions  of  dollars ;  and,  with 
a  view  to  the  accomplishment  of  that  object,  to 
borrow  of  the  bank  two  millions  of  dollars,  to  be  re 
imbursed  in  ten  equal  yearly  instalments. 

The  difference  between  the  interest  payable  on 
the  loan  and  the  dividends  on  the  stock  constitutes 
an  item  of  annual  income  to  the  United  States.  It 
is  unappropriated. 

6th.  "  An  act  repealing,  after  the  last  day  of  June 
next,  the  duties  heretofore  laid  upon  distilled  spirits 
imported  from  abroad,  and  laying  others  in  their 
stead;  and,  also,  upon  spirits  distilled  within  the 
United  States,  and  for  appropriating  the  same," 
passed  the  3d  of  March,  1791. 

This  act,  in  conformity  with  its  title,  repeals,  after 
June,  1791,  the  duties  on  imported  spirits,  laid  by 
the  act  of  the  loth  of  August,  1790,  and  establishes, 
in  lieu  of  them,  higher  rates,  namely,  from  twenty  to 
forty  cents  per  gallon,  according  to  proof.  It  also 
lays  duties,  to  commence  at  the  same  time,  upon 
spirits  distilled  within  the  United  States;  namely, 
on  those  from  foreign  materials,  from  eleven  to  thirty 
cents,  according  to  proof;  on  those  from  domestic 
materials,  if  distilled  in  cities,  towns,  or  villages, 
from  nine  to  twenty-five  cents  per  gallon,  according 
to  proof;  if  distilled  in  other  places,  it  imposes  a 
yearly  rate  of  sixty  cents  per  gallon  of  the  capacity 
of  each  still,  with  an  option  to  the  distiller  to  keep 
and  render  an  account  of  the  produce  of  his  still, 


Public  Credit  205 

and  to  pay  nine  cents  per  gallon  of  the  quantity  of 
spirits  distilled  therein. 

These  duties  are  appropriated,  primarily,  in  the 
same  manner,  and  to  the  same  purposes,  as  those  laid 
on  imported  articles  by  the  act  of  the  loth  of  August, 
1790,  and  are  to  continue  for  the  same  time,  with  the 
like  reservation  of  a  right  to  substitute  other  duties 
or  taxes  of  equal  value.  There  is  a  further  appro 
priation,  which  will  be  noticed  hereafter. 

7th.  "  An  act  for  raising  a  further  sum  of  money 
for  the  protection  of  the  frontiers,  and  for  other  pur 
poses  therein  mentioned,"  passed  May  2,  1792. 

This  act  repeals,  after  June,  1792,  the  former  du 
ties  on  a  number  of  imported  articles,  and  establishes 
higher  duties  in  their  stead. 

It  extends,  among  other  things,  the  duties  on 
foreign  distilled  spirits,  laying  on  those  made  from 
grain,  twenty-eight  to  fifty  cents  per  gallon;  on 
others,  twenty-five  to  forty-six  cents  per  gallon. 
The  appropriation  and  duration  of  these  new  duties 
are  conformable  and  coextensive  with  those  repealed. 
There  is,  likewise,  an  addition  of  two  and  a  half  per 
cent,  to  that  class  of  duties  ad  valorem,  which,  be 
fore,  was  rated  at  five  per  cent. ;  but  this  additional 
duty  is  limited  to  the  term  of  two  years. 

Out  of  the  surplus  of  these  duties,  after  satisfy 
ing  the  permanent  appropriations,  certain  gross 
sums  are  appropriated  for  the  service  of  the  War 
Department. 

8th.  "  An  act  concerning  the  duties  on  spirits  dis 
tilled  within  the  United  States,"  passed  May  8,  1792. 

This  act  repeals,  after  the  last  day  of  June,  1792, 


2o6  Alexander  Hamilton 

the  former  duties  on  spirits  distilled  within  the 
United  States,  and  on  stills,  and,  instead  of  them, 
establishes  lower  duties,  namely,  on  those  made  of 
foreign  materials,  from  ten  to  twenty-five  cents  per 
gallon,  according  to  proof;  on  those  made  of  do 
mestic  materials,  if  in  cities,  towns,  or  villages,  or  at 
distilleries,  where  the  stills,  singly  or  together,  are  of 
the  capacity  of  four  hundred  gallons,  or  upwards, 
from  seven  to  eighteen  cents  per  gallon  of  the  spirits 
distilled,  according  to  proof;  if  made  in  other  places, 
or  at  distilleries  where  the  stills  are  of  inferior  capa 
city,  the  yearly  rate  of  fifty-four  cents  per  gallon  of 
the  capacity  of  each  still.  A  new  option  is  given 
to  the  distiller,  which  is,  instead  of  paying  the  yearly 
rate,  to  take  out  licenses  for  the  monthly  employ 
ment  of  his  stills,  paying,  each  time,  ten  cents  per 
gallon  of  the  capacity  of  each  still. 

These  new  duties  are  appropriated  in  the  same 
manner,  and  for  the  same  purposes,  and  are  to  continue 
for  the  same  time,  as  those  for  which  they  are  sub 
stitutes:  and  to  make  good  any  deficiency  which  may 
accrue  from  lowering  the  rates,  the  surplus  of  the 
duty  imposed  by  the  act  of  the  second  of  the  same 
month,  is  appropriated. 

9th.  "An  act  to  promote  the  progress  of  useful 
arts,  and  to  repeal  the  act  heretofore  made  for  that 
purpose,"  passed  February  21,  1793. 

This  act  ordains  certain  fees  to  be  paid,  by  persons 
to  whom  patents  are  granted,  for  inventions,  dis 
coveries,  or  improvements,  and  appropriates  them  to 
the  purpose  of  defraying  clerk  hire  in  the  Department 
of  State,  Its  duration  is  indefinite. 


Public  Credit  207 

zoth.  "An  act  to  establish  the  post-office  and 
post-roads,  within  the  United  States,"  passed  May  8, 
1794. 

This  act  establishes,  to  commence  on  the  first  of 
June  following,  various  rates  of  postage  on  letters, 
and  directs  that  the  Postmaster  shall  render  to  the 
Treasury  Department  a  quarterly  account  of  receipts 
and  expenditures,  and  shall  pay,  quarterly,  into  the 
Treasury,  the  balance  in  his  hands. 

The  duration  of  this  act  is,  also,  indefinite.  It 
contains  no  appropriation  of  the  sums  paid  into  the 
Treasury. 

nth.  "An  act  laying  duties  upon  carriages  for 
the  conveyance  of  persons,"  passed  June  5,  1794. 

This  act  lays  different  rates  of  duty,  from  ten 
dollars  down  to  one  dollar,  upon  carriages  for  the 
conveyance  of  persons,  kept  by  or  for  any  person,  for 
his  or  her  own  use,  or  to  be  let  to  hire,  or  for  the  con 
veying  of  passengers;  and  to  guard  against  mis 
apprehension,  declares,  that  the  duties  shall  not  be 
construed  to  extend  to  any  carriage  actually  and 
chiefly  employed  in  husbandry,  or  for  the  transporting 
or  carrying  of  goods,  wares,  merchandise,  produce,  or 
commodities. 

The  duration  of  the  duties  is  limited  to  the  end  of 
the  session  of  Congress  which  shall  be  next  after  the 
term  of  two  years  from  the  time  of  passing  the  act. 
It  contains  no  appropriation. 

1 2th.  "An  act  laying  duties  on  licenses  for  selling 
wines  and  foreign  distilled  spirituous  liquors,  by 
retail,"  passed  June  5,  1794. 

This  act  requires,  that  every  retail  dealer  in  wines, 


2o8  Alexander  Hamilton 

shall  take  out  a  yearly  license,  and  shall  pay  for  it  a 
duty  of  five  dollars;  and  that  every  retail  dealer  in 
foreign  distilled  spirituous  liquors  shall  also  take  out 
a  yearly  license,  and  pay  for  it  a  duty  of  five  dollars. 
It  defines  a  retail  dealer  in  wines  to  be  a  person  who 
deals  in  the  selling  of  wines,  to  be  carried  or  sent  out 
of  the  house,  building,  or  place  of  his  or  her  dwelling,  in 
less  quantities  at  one  time  than  thirty  gallons,  except 
in  the  original  cask,  case,  box,  or  package  in  which  it 
is  imported.  A  retail  dealer  of  spirituous  liquors, 
to  be  a  person  who  shall  deal  in  the  selling  of  foreign 
distilled  spirituous  liquors,  to  be  carried  or  sent  out  of 
the  house,  building,  or  place  of  his  or  her  dwelling,  in 
less  quantities  than  twenty  gallons  at  one  time.  No 
difference  is  made  between  the  dealer  in  several  kinds 
of  wines,  or  several  kinds  of  foreign  distilled  liquors, 
and  the  dealer  in  one  kind. 

The  same  duration  is  assigned  to  this  act,  as  to  the 
one  last  cited.  It  is  equally  without  an  appropriation. 

1 3th.  "  An  act  laying  certain  duties  upon  snuff  and 
refined  sugar,"  passed  June  5,  1794. 

This  act  lays  a  duty  of  eight  cents  per  pound  on 
all  snuff  which,  after  the  3oth  of  September,  1794, 
should  be  manufactured  within  the  United  States, 
and  of  two  cents  per  pound  on  all  sugar  which,  after 
that  day,  should  be  refined  within  the  United  States. 
The  remark  made  upon  the  two  last  recited  acts  is 
applicable  to  this,  as  to  the  duration  of  the  duties, 
and  the  appropriation  of  their  proceeds. 

1 4th.  "An  act  laying  additional  duties  on  goods, 
wares,  and  merchandises  imported  into  the  United 
States,"  passed  June  7,  1794. 


Public  Credit  209 

This  act  lays  upon  sundry  enumerated  articles,  on 
their  importation  from  foreign  countries,  certain 
specific  and  ad- valorem  rates  of  duty,  in  addition  to 
those  before  charged  upon  them,  and  adds,  generally, 
a  duty  of  two  and  a  half  per  centum  on  all  that  class 
of  articles  which  were  before  chargeable  with  seven 
and  a  half  per  centum  ad  valorem.  It  also  prolongs 
the  temporary  two  and  a  half  per  centum  laid  by 
the  act  of  May  2,  1792,  till  the  first  of  January,  1797, 
to  which  period  the  other  duties  laid  by  it  are  to 
continue.  It  contains  no  appropriation. 

1 5th.  "An  act  laying  duties  on  property  sold  at 
auction,"  passed  June  9,  1794. 

This  act  lays  a  duty  on  sales  at  auction  by  persons 
licensed  according  to  the  laws  of  a  State,  or  this  act, 
prohibiting  others  from  selling  at  auction,  of  one 
quarter  per  cent,  of  the  purchase  money  arising 
from  the  sale  of  any  right,  interest,  or  estate  in  lands, 
tenements,  or  hereditaments,  utensils  in  husbandry, 
farming  stock,  or  ships  and  vessels,  of  one  half  per 
cent,  of  the  purchase  money  arising  from  the  sales  of 
any  other  goods,  chattels,  rights,  or  credits. 

The  term  of  these  duties  is  limited  to  the  end  of 
the  session  next  after  the  expiration  of  two  years 
from  the  time  of  passing  the  act,  which  also  is  with 
out  an  appropriation. 

But,  by  an  act  entitled  "  An  act  making  appropria 
tions  for  certain  purposes  therein  expressed,"  passed 
the  same  9th  of  June,  1794,  certain  specific  sums, 
amounting  together  to  1,292,137  dollars  38  cents, 
are  charged  upon  the  proceeds  of  the  revenues  which 
are  created  by  the  five  last-mentioned  acts,  and  there 


VOL.  111.— 14. 


210  Alexander  Hamilton 

is  a  reservation  made  out  of  them  of  a  sum  sufficient 
to  .pay  the  interest  of  whatever  moneys  may  be 
borrowed  pursuant  to  the  act  entitled  "  An  act  mak 
ing  further  provision  for  the  expenses  attending  the 
intercourse  of  the  United  States  with  foreign  na 
tions,"  etc.,  passed  the  2oth  of  March,  1794,  which 
sum  is  pledged  for  the  payment  of  that  interest. 

These  acts  comprehend  all  the  current  revenues 
of  the  United  States.  Their  product  will  appear 
hereafter. 

In  addition  to  them,  a  fund  will  be  derived  from 
the  sale  of  the  public  lands  in  the  Western  territory. 
And  there  likewise  occur,  from  time  to  time,  pay 
ments  into  the  Treasury  on  account  of  old  debts; 
but  these  are  too  casual,  and  of  too  little  magnitude, 
to  be  more  than  cursorily  mentioned. 

The  lands  in  the  Western  territory,  of  which  the 
Government  of  the  United  States  has  acquired  the 
right  of  soil,  are  estimated,  in  a  report  of  the  late 
Secretary  of  State,  to  amount  to  21,000,000  of  acres. 
This  quantity,  at  twenty  cents  per  acre,  the  price 
upon  former  occasions  contemplated,  would  yield  a 
sum  of  $4,200,000.  But  it  is  believed  that  it  would 
be  unsafe  to  count  upon  so  large  a  sum.  Besides  the 
uncertainty  as  to  the  proportion  which  may  be  of  a 
salable  quality,  and  as  to  the  price  which  may  be 
obtained  for  it,  the  boundary  line  between  the 
United  States  and  the  Indians  is  understood  to  be 
unsettled  with  regard  to  a  large  part  of  the  tract  on 
which  the  computation  is  made.  If  it  ultimately 
yields  three  millions  of  dollars  it  will  probably  equal 
every  reasonable  expectation. 


Public  Credit  211 

II.  The  provisions  for  funding  the  debt,  and  for 
payment  of  interest  upon  it,  are  comprised  in  the 
following  acts: 

i  st.  "  An  act  making  provision  for  the  debt  of  the 
United  States,"  passed  August  4,  1790. 

This  act,  commonly  called  the  funding  act,  con 
tains  these  several  provisions,  viz. : 

1 .  It  reserves  out  of  the  proceeds  of  the  duties  on 
imports  and  tonnage  for  the  support  of  the  Govern 
ment  of  the  United  States,  and  their  common  de 
fence,  the  yearly  sum  of  600,000  dollars. 

2.  It  appropriates  so  much  of  the  same  proceeds  as 
should  be  necessary  to  the  payment  of  interest  on 
foreign  loans  before  that  time  contracted,  or  which 
should  afterward  be  contracted,  for  discharging  the 
arrears  of  interest  and  the   principal   of   anteced 
ent  foreign  loans,  to  continue  so  appropriated  till 
the   debt   created  by  those  loans  should  be  fully 
discharged. 

3.  It  authorizes  the  President  to  borrow  any  sum 
or  sums,  not  exceeding  $12,000,000,  to  discharge  the 
arrears  of  interest  upon,  and  the  instalments  of  the 
principal  of,  the  foreign  debt  due  and  to  grow  due; 
and,  if  to  be  effected  on  advantageous  terms,  to  pay  off 
the  whole  of  that  debt ;   and  further  authorizes  him 
to  make  such  other  contracts  respecting  it  as  should 
be  found  for  the  interest  of  the  United  States,  so 
that  no  engagement  or  contract  should  preclude  from 
reimbursing  the  sums  borrowed,  within  fifteen  years 
after  they  should  be  borrowed. 

4.  In  order  to  adapt  the  form  of  the  domestic  debt 
to  the  then  circumstances  of  the  United  States,  as 


212  Alexander  Hamilton 

far  as  should  be  found  practicable,  "  consistently  with 
good  faith  and  the  rights  of  the  creditors,  which,  it 
truly  declares,  could  only  be  done  by  a  voluntary  loan 
on  their  part,"  it  proposes  a  loan  to  the  United  States 
(directing  for  that  purpose  books  for  subscriptions 
to  be  opened  at  the  Treasury  and  by  commissioners 
of  loans  in  the  several  States  on  the  ist  of  October, 
1790,  and  to  continue  for  a  year),  the  sums  sub 
scribed  to  the  loan  to  be  paid  in  certain  enumerated 
evidences  of  the  debt  of  the  United  States  upon 
these  terms,  viz. : 

First.  That  the  interest  unpaid  on  the  principal  of 
those  evidences  should  be  computed  up  to  the  last  of 
December,  1790. 

Second.  That,  for  any  sum  subscribed  and  paid  in 
the  principal  of  the  debt,  the  subscriber  should  be 
entitled  to  one  certificate  for  a  sum  equal  to  two 
thirds  of  the  sum  subscribed,  bearing  an  interest  of 
six  per  cent,  per  annum,  commencing  the  first  day 
of  January,  1791,  payable  quarter  yearly,  and  subject 
to  redemption  by  payments  not  exceeding,  in  one 
year,  on  account  of  both  principal  and  interest,  eight 
dollars  upon  a  hundred  of  the  original  sum  so  sub 
scribed  and  paid;  and  to  another  certificate  for  a 
sum  equal  to  the  remaining  third  of  that  sum,  which, 
after  the  year  1800,  should  bear  a  like  interest,  pay 
able  in  like  manner,  and  subject  to  a  like  rate  of 
redemption.  But  that  the  United  States,  though 
having  a  right  to  redeem  in  the  above-mentioned  pro 
portion,  should  not  be  obliged  to  do  it. 

Third.  That  for  any  sum  subscribed  and  paid  in 
the  interest  of  the  debt,  the  subscriber  should  be  en- 


Public  Credit  213 

titled  to  a  certificate  for  a  sum  equal  to  the  sum  sub 
scribed,  bearing  an  interest  of  three  per  cent,  per 
annum,  from  the  said  last  day  of  December,  1790, 
payable  quarter  yearly,  and  redeemable  at  pleasure, 
by  payment  of  the  principal. 

Fourth.  That  the  new  stock  created  by  the  said 
loan  should  be  transferable  on  the  books  upon  which 
the  credit  for  it  should  stand  by  the  proprietor  or  his 
attorney;  these  books  to  be  either  those  kept  for  the 
purpose  at  the  Treasury,  or  by  commissioners  of 
loans  in  the  respective  States;  a  mode  being  pro 
vided  for  the  transfer  from  the  books  at  one  place  to 
those  at  another.  . 

Fifth.  That  the  interest  should  be  payable  where 
soever  the  credit  for  the  stock  should  exist,  when  the 
payment  of  interest  should  become  due ;  except  that 
the  dividend  of  interest  for  any  quarter  of  a  year, 
which  should  not  be  demanded  before  the  expiration 
of  a  third  quarter,  should  afterwards  be  demandable 
only  at  the  Treasury. 

Sixth.  That,  for  the  regular  payment  of  the  in 
terest  on  the  several  kinds  of  stock  to  arise  from  the 
loan,  as  it  should  accrue,  including  that  which  is 
deferred,  the  proceeds  of  the  public  revenues,  which, 
before  that  time,  had  been,  or  during  the  then  ses 
sion  should  be,  provided,  after  reserving,  yearly, 
600,000  dollars,  for  the  support  of  the  Government  of 
the  United  States,  and  their  common  defence,  and  such 
sum  as  should  be  necessary  for  payment  of  interest  on 
the  foreign  loans  before  mentioned,  should  be,  and 
thereby  were,  pledged  and  appropriated,  till  the  final 
redemption  of  the  capital  stock. 


214  Alexander  Hamilton 

5.  Premising  that  some  of  the  creditors  of  the 
United  States  might  not  think  fit  to  become  sub 
scribers  to  the  loan,  this  act  declares  that  "  nothing 
contained  in  it  should  be  construed  in  any  wise  to  alter, 
abridge,  or  impair  the  rights  of  those  creditors  of  the 
United  States  who  should  not  subscribe  to  the  loan  or 
the  contracts  upon  which  their  respective  claims  are 
founded,  but  that  the  said  contracts  and  rights  should 
remain  in  full  force  and  virtue."     And  to  obviate 
all  idea  of  compulsion  on  the  creditors  to  subscribe, 
it  allows  to  non-subscribers,  during  the  pendency  of 
the  loan,  and  until  the  end  of  the  year  1791,  a  rate 
per  qentum,  on  their  respective  demands,  equal  to 
that  which  is  paid  to  subscribing  creditors;   on  the 
sole  condition,  that  the  evidences  of  debt  holden  by 
them,  except  those  which  had  been  issued  by  the 
Register  of  the  Treasury,  for  the  registered  debt, 
should  be  exchanged  for  other  certificates,  specifying 
the  specie  amount  of  those  in  exchange  for  which 
they  were  given,  and  otherwise  of  the  like  tenor  with 
those  which  had  theretofore  been  issued  by  the 
Register  of  the  Treasury,  for  the  registered  debt; 
stating,  as  the  grounds  of  this  condition,  that  some 
of  the  certificates  then  in  circulation  had  not  been 
liquidated  to  specie  value,  that  most  of  them  were 
greatly  subject  to  counterfeit,  that  counterfeits  had 
actually  taken  place  in  numerous  instances,  and  that 
embarrassment   and  imposition   might   attend   the 
payment  of  interest  on  these  certificates  in  their 
then  form. 

6.  This  act  likewise  proposes  another  loan,  to  the 
amount  of  $21,500,000,  payable  in  the  principal  and 


Public  Credit  215 

interest,  indiscriminately,  of  the  evidences  of  debt 
of  the  respective  States,  according  to  certain  quotas, 
to  be  conducted  in  the  same  manner,  and  to  be  open 
for  the  same  time,  as  that  in  the  domestic  debt  of 
the  United  States.  The  terms  of  this  loan  to  be: 

First.  That,  for  any  sum  subscribed,  the  sub 
scriber  should  be  entitled  to  one  certificate,  for  a 
sum  equal  to  four  ninths  of  the  subscribed  sum, 
bearing  an  interest  of  six  per  centum  per  annum, 
commencing  the  first  day  of  January,  1791;  to  an 
other  certificate,  for  a  sum  equal  to  two  ninths  of 
the  said  subscribed  sum,  bearing  an  interest,  after 
the  year  1800,  of  six  per  centum  per  annum;  and  to 
a  third  certificate,  for  a  sum  equal  to  three  ninths  of 
the  said  subscribed  sum,  bearing  an  interest  of  three 
per  centum  per  annum,  commencing  on  the  same 
first  day  of  January,  1791 ;  the  interest,  in  each  case, 
to  be  payable  in  like  manner,  and  to  be  subject  to 
the  like  redemption,  as  that  on  the  correspondent 
kinds  of  stock  to  be  created  by  this,  the  said  first- 
mentioned  loan.  And  the  stock  to  be  created  by  this 
second  loan  to  be  transferable  on  the  same  principles, 
and  in  the  same  modes,  as  that  produced  by  the 
former. 

Second.  That,  for  the  regular  payment  of  interest 
on  the  several  kinds  of  stock  to  arise  from  this  loan, 
as  it  should  accrue,  including  that  which  is  deferred, 
the  proceeds  of  the  public  revenues,  which,  before 
that  time,  had  been,  or  during  the  then  session  should 
be,  provided,  after  reserving  the  aforesaid  yearly  sum 
of  $600,000,  the  sum  necessary  for  payment  of  interest 
on  the  foreign  loans  made  and  to  be  made,  and  the  sum 


216  Alexander  Hamilton 

necessary  for  payment  of  interest  on  the  loan  in  the 
domestic  debt,  should  be,  and  thereby  were,  pledged 
and  appropriated;  to  continue  so  pledged  and  ap 
propriated  until  the  final  redemption  of  the  capital 
stock. 

7.  To  secure  the  due  application  of  these  revenues, 
according  to  the  appropriations,  an  account  of  them 
is  directed  to  be  kept,  distinct  from  that  of  the  pro 
ceeds  of  any  other  revenues,  except  such  as  should 
be  raised  to  make  good  a  deficiency  in  those ;  and  the 
faith  of  the  United  States  is  pledged  to  appropriate 
additional  and  permanent  funds  for  satisfying  such 
deficiency. 

8.  The  proceeds  of  the  sales  of  lands  in  the  Western 
territory,  then  belonging,  or  which  thereafter  should 
belong,  to  the  United  States,  are  pledged  and  appro 
priated  for  the  discharge  of  the  debts  which  the 
United  States  then  owed,  or  by  virtue  of  that  act 
should  owe. 

There  are  several  collateral  and  supplementary 
provisions,  which  are  omitted,  as  immaterial  to  the 
intended  view  of  the  subject. 

2d.  "  An  act  repealing,  after  the  last  day  of  June 
next,  the  duties  heretofore  laid  upon  distilled  spirits, " 
etc.,  passed  the  3d  of  March,  1791. 

The  proceeds  of  the  duties  laid  by  this  act  are 
made  subject  to  the  same  appropriations,  and  in  the 
same  order  of  priority,  as  those  contained  in  the 
funding  act;  and,  to  secure  their  due  application,  an 
account  is  directed  to  be  kept  of  them,  distinct  from 
that  of  any  other  revenues,  except  those  appro 
priated  by  the  funding  act. 


Public  Credit  217 

3d.  "  An  act  for  raising  a  further  sum  of  money  for 
the  protection  of  the  frontiers,"  etc.,  passed  May  2, 
1792. 

This  act,  which,  as  has  been  before  noticed,  in 
creased  permanently  the  duties  on  certain  imported 
articles,  and  laid  a  temporary  additional  duty  on 
some  others,  appropriates,  primarily,  the  proceeds  of 
the  permanent  augmentations  in  the  same  manner, 
and  to  the  same  purposes,  as  the  antecedent  duties 
were  appropriated — that  is,  in  conformity  with  the 
funding  act. 

4th.  "  An  act  concerning  the  duties  on  spirits  dis 
tilled  within  the  United  States,"  passed  May  8,  1792. 

This  act,  which  lowers  the  duties  on  spirits  dis 
tilled  within  the  United  States,  and  on  stills,  appro 
priates  the  proceeds  of  the  reduced  duties  in  the  same 
manner  as  were  the  former  duties ;  and,  to  make  good 
whatever  deficiency  might  be  occasioned  by  the  re 
duction  of  the  rates,  pledges,  as  a  substitute,  the 
surplus  of  the  augmented  duties  laid  by  the  last-cited 
act. 

5th.  "An  act  providing  for  the  payment  of  the 
second  instalment  due  on  a  loan  made  of  the  Bank 
of  the  United  States,"  passed  June  4,  1794. 

This  act,  in  addition  to  a  provision  for  paying  that 
second  instalment,  appropriates  so  much  of  the 
dividends  on  the  stock  which  the  United  States  hold 
in  the  bank,  as  should  be  necessary  to  the  payment 
of  interest  on  the  capital  of  a  loan  of  $2,000,000,  had 
of  the  bank,  pursuant  to  the  nth  section  of  the  act 
by  which  it  is  incorporated.  It  also  fixes  the  last 
day  of  December,  in  each  year,  as  the  annual  period 


2i8  Alexander  Hamilton 

for  the  payment  of  the  successive  instalments  of  that 
loan. 

6th.  "  An  act  making  provision  for  the  payment  of 
the  interest  on  the  balances  due  to  certain  States," 
upon  a  final  settlement  of  accounts  between  the 
United  States  and  the  individual  States,  passed  May 

3°.  Z794- 

This  act  directs  that  interest  shall  be  allowed  and 
computed  on  the  balances  to  creditor  States  from 
the  last  of  December,  1789,  to  the  last  of  Decem 
ber,  1794 ;  which,  being  placed  to  their  credit  respect 
ively,  shall  bear  an  interest  of  three  per  centum  per 
annum,  from  the  period  last  mentioned. 

It  further  directs  that  the  interest  on  the  prin 
cipal  balances,  to  be  funded  agreeably  to  the  terms 
of  the  act  for  the  settlement  of  accounts,  together 
with  the  interest  upon  the  arrears  of  interest,  com 
puted  on  those  balances,  and  forming  a  new  capital, 
shall  be  payable  at  the  offices  of  the  commissioners 
of  loans  within  the  States  to  which  the  balances  are 
respectively  due,  and  shall  be  paid  quarter  yearly, 
after  the  last  day  of  December,  1794,  at  the  same 
epochs  in  each  year,  at  which  interest  is  payable  on 
the  other  parts  of  the  funded  debt;  to  which  end, 
so  much  of  the  proceeds  of  the  duties  on  imports  and 
tonnage  as  may  be  necessary,  and  as  were  not  other 
wise  previously  appropriated,  are  appropriated;  and 
the  faith  of  the  United  States  is  pledged  to  provide 
for  any  deficiency  which  may  happen  by  additional 
and  permanent  funds. 

There  are  several  acts  which  prolong,  from  time 
to  time,  the  subscriptions  in  the  domestic  and  State 


Public  Credit  219 

debts,  on  the  same  terms  as  by  the  funding  act, 
those  in  the  domestic  debt  being  continued  down  to 
the  last  day  of  December,  1794;  which  acts,  together 
with  the  acts  particularly  cited,  comprise  all  those 
that  relate  to  the  funding  of  the  public  debt,  and  the 
payment  of  interest  thereupon.  The  result  of  these 
acts  is  exhibited  in  the  tables  A,  B,  C,  and  D,  which 
show  the  amount  of  the  foreign  debt,  that  of  the 
funded  debt,  the  probable  amount  of  that  which  re 
mains  unfunded,  of  what  composed,  and  the  annual 
amount  of  interest  upon  the  different  portions  of 
debt,  according  to  contract,  and  according  to  the 
plan  of  this  report. 

III.  The  provisions  for  reimbursing  and  redeem 
ing  the  public  debt  are  contained  in  the  following 
acts,  and  are  as  follows,  viz. : 

i  st.  "  An  act  making  provision  for  the  debt  of  the 
United  States,"  passed  the  4th  of  August,  1790. 

This  act,  which  is  the  one  that  regulates  the  fund 
ing  of  the  debt,  by  the  last  section  appropriates  the 
proceeds  of  the  sales  of  the  lands  in  the  Western 
territory,  then  belonging,  or  thereafter  to  belong,  to 
the  United  States,  to  the  sinking  or  discharging  of 
the  debts  for  which  the  United  States  then  were,  or 
by  virtue  of  that  act  should  be,  holden,  to  be  ap 
plied  solely  to  that  use,  until  they  should  be  fully 
satisfied. 

2d.  "An  act  making  provision  for  the  reduction 
of  the  public  debt,"  passed  August  12,  1790. 

This  act,  premising  that  it  is  desirable,  by  all  just 
and  proper  means,  to  effect  a  reduction  of  the  public 


22O  Alexander  Hamilton 

debt,  and  that  the  application  of  the  surplus  revenue 
to  that  object  will  not  only  contribute  to  this  desir 
able  end,  but  will  be  beneficial  to  the  creditors  of 
the  United  States,  by  raising  the  price  of  their  stock, 
and  be  productive  of  considerable  saving  to  the 
United  States,  enacts — 

1.  That  the  surplus  of  the  duties  on  imports  and 
tonnage,  to  the  end  of  the  year  1790,  shall  be  ap 
plied  to  the  purchase  of  the  debt  of  the  United 
States,  at  its  market  price,  if  not  exceeding  the  par 
or  true  value  thereof. 

2.  That  the  purchases  to  be  made  shall  be  con 
ducted  under  the  direction  of  the  President  of  the 
Senate,  the  Chief -Just  ice,  the  Secretary  of  State,  the 
Secretary  of  the  Treasury,  and  the  Attorney-Gen 
eral,  who,  or  any  three  of  whom,  with  the  approba 
tion  of  the  President,  are  authorized  to  cause  them 
to  be  made  in  such  manner,  and  under  such  regula 
tions,  as  shall  appear  to  them  best  calculated  to 
fulfil  the  intent  of  this  act:    Provided  that  the  same 
should  be  made  openly,  and  with  due  regard  to  the 
equal  benefit  of  the  several  States, 

3.  That  the  accounts  of  the  application  of  the 
fund  should  be  settled  as  other  public  accounts,  ac 
companied  with  returns  of  the  amount  of  debt  pur 
chased,  at  the  end  of  each  quarter  of  a  year;  and 
that  a  full  and  exact  report  of  the  proceedings  of  the 
commissioners  should  be  laid  before  Congress,  within 
the  first  fourteen  days  of  each  session,  including  a 
statement    of    the    disbursements    and    purchases, 
specifying  the  times  when,  prices  at  which,  and  per 
sons  of  whom,  the  purchases  were  made. 


Public  Credit  221 

4.  That,  in  addition  to  this  fund,  the  President 
should  be  authorized  to  borrow  any  sum  or  sums, 
not  exceeding  two  millions  of  dollars,  at  an  interest 
not  exceeding  five  per  centum,  to  be  applied  to  pur 
chases  of  public  debt  in  like  manner,  and  under  the 
same  direction  and  regulations,  as  the  first-men 
tioned  fund:  Provided  that,  out  of  the  interest  of  the 
debt  to  be  purchased,  there  should  be  appropriated, 
annually,  a  sum  not  exceeding  eight  per  centum  of  the 
sums  borrowed,  towards  paying  the  interest  and  re 
imbursing  the  principal  of  these  sums. 

But  to  guard  against  the  possibility  of  a  deficiency 
of  means  to  pay  the  interest  on  the  debt  which  was 
to  accrue  in  the  year  1791,  authority  is  given  to 
reserve  and  apply  to  that  purpose,  out  of  the  first- 
mentioned  fund,  as  much  as  might  be  necessary  to 
supply  the  defect  of  receipts,  during  that  year,  on 
account  of  the  duties  which  should  accrue  after  the 
year  1790. 

3d.  "  An  act  repealing,  after  the  last  day  of  June 
next,  the  duties  heretofore  laid  upon  distilled 
spirits,  etc.,"  passed  the  3d  of  March,  1791. 

This  act  appropriates  whatever  surplus  may  re 
main,  from  year  to  year,  of  the  proceeds  of  the 
duties  which  it  imposes,  after  satisfying  prior  ap 
propriations,  to  the  reduction  of  the  public  debt, 
unless  such  surplus  shall  be  required  for  the  current 
public  exigencies,  and,  by  special  acts  of  Congress, 
shall  be  appropriated  thereto. 

4th.  "An  act  supplementary  to  the  act  making 
provision  for  the  reduction  of  the  public  debt," 
passed  the  3d  day  of  March,  1791. 


222  Alexander  Hamilton 

This  act  declares  that  the  terms  of  a  loan  of  three 
millions  of  florins,  obtained  in  Holland,  bearing  five 
per  cent,  interest,  and  four  and  a  half  per  cent,  for 
charges,  and  future  loans  on  the  same  terms,  should 
be  deemed  to  be  within  the  meaning  of  the  act  of 
the  1 2th  of  August,  1790. 

5th.  "An  act  supplementary  to  the  act  making 
provision  for  the  debt  of  the  United  States,"  passed 
May  8,  1792. 

This  act  makes  provision  for  the  payment  of  a 
debt  due  to  certain  foreign  officers  who  had  served 
the  United  States  (the  interest  of  which  was,  by 
stipulation,  payable  at  Paris),  out  of  the  moneys 
authorized  to  be  borrowed  by  the  funding  act.  It 
also  establishes  a  permanent  sinking  fund,  to  be 
composed — 

1.  Of  the  interest  of  the  public  debt  purchased, 
redeemed,  or  paid  into  the  Treasury,  in  satisfaction 
of  any  debt  or  demand. 

2.  Of  the  surplus,  if  any,  which  should  remain  of 
moneys  appropriated  for  paying  the  interest  of  the 
public  debt,  after  paying  that  interest. 

This  fund  is  to  be  applied,  under  the  direction 
of  the  commissioners  nominated  in  the  act  of  the 
1 2th  of  August,  with  the  like  approbation  of  the 
President — 

First.  To  the  purchase  of  the  several  species  of 
stock  constituting  the  debt  of  the  United  States,  at 
their  respective  market  prices,  not  exceeding  the  par 
or  true  value  thereof,  and,  as  nearly  as  may  be,  in 
equal  proportions,  until  the  annual  amount  of  the 
fund  shall  be  equal  to  two  per  centum  of  the  whole 


Public  Credit  223 

amount  of  the  outstanding  funded  stock,  bearing  a 
present  interest  of  six  per  centum:  Thenceforth — 

Second.  To  the  redemption  of  that  stock,  accord 
ing  to  the  right  reserved  to  the  United  States,  until 
the  whole  should  be  redeemed;  and,  lastly,  after  such 
redemption,  to  the  purchase,  at  its  market  price,  of 
any  unredeemed  debt  of  the  United  States;  which 
purchases  are  directed  to  be  made  at  the  lowest 
prices  at  which  they  can  be  effected  by  open  pur 
chase,  or  by  receiving  sealed  proposals,  to  be  opened 
in  the  presence  of  the  commissioners,  or  persons 
authorized  by  them  to  make  purchases,  and  of  the 
persons  making  the  proposals;  and  are  to  be  ac 
counted  for  at  the  Treasury,  and  reported  to  Con 
gress,  in  the  same  manner  as  the  purchases  before 
authorized  to  be  made. 

6th.  "An  act  making  appropriation  for  the  sup 
port  of  Government  for  the  year  1793." 

This  act  provides  that  the  President  of  the  United 
States  shall  cause  so  much  of  the  loan  made  of  the 
Bank  of  the  United  States,  pursuant  to  the  nth 
section  of  the  act  of  incorporation,  to  be  paid  off  in 
sums  not  less  than  50,000  dollars,  as,  in  his  opinion, 
the  state  of  the  Treasury  may,  from  time  to  time, 
admit,  out  of  any  moneys  which  may  be  in  the 
Treasury,  having  due  regard  to  the  exigencies  of  the 
Government  and  the  appropriations  made,  and  to 
be  made,  by  law. 

yth.  "An  act  making  provision  for  the  payment 
of  the  first  instalment  due  on  a  loan  made  of  the 
Bank  of  the  United  States,"  passed  March  2,  1793. 

This   act   authorizes   the   payment   of   the   first 


224  Alexander  Hamilton 

instalment  of  a  loan  of  two  millions  of  dollars,  had  of 
the  Bank  of  the  United  States,  pursuant  to  the  nth 
section  of  the  act  by  which  it  is  incorporated,  out  of 
the  moneys  borrowed  upon  the  authority  of  the 
act  making  provision  for  the  reduction  of  the  public 
debt. 

8th.  "An  act  providing  for  the  payment  of  the 
second  instalment,  due  on  a  loan  made  of  the  Bank 
of  the  United  States,"  passed  June  4,  1794. 

This  act  authorizes  the  payment  of  that  second 
instalment,  out  of  the  proceeds  of  any  foreign  loans 
before  that  time  transferred  to  the  United  States. 
It  makes  other  provisions  which  have  been  noticed 
under  a  preceding  head. 

These  acts  comprise  all  the  provisions  which  have 
been  made  for  reimbursing  and  redeeming  the  debt 
of  the  United  States.  The  result  to  the  last  of 
December,  1794,  is  presented  in  the  statement  E. 

There  are  two  other  acts  which,  though  not  falling 
properly  under  either  of  the  foregoing  heads,  require, 
from  their  relation  to  the  subject,  to  be  brought  into 
view: 

i.  An  act  relative  to  claims  against  the  United 
States  not  barred  by  any  act  of  limitation,  and 
which  have  not  been  already  adjusted,  passed 
February  12,  1793. 

This  act  directs  that  all  claims  of  the  description 
given  in  the  title  shall  be  presented  at  the  Treasury 
for  adjustment  by  the  ist  of  May,  1794*  or  shall 
be  forever  after  barred;  except  those  for  loan-office 
certificates,  final  settlements,  indents  of  interest,  Regis 
ter's  certificates,  balances  on  the  books  of  the  Treasury, 


Public  Credit  225 

loans  of  money  in  foreign  countries,  certificates  issued 
under  the  act  entitled  "An  act  making  provision  for 
the  debt  of  the  United  States." 

Such  of  the  claims  presented  as  cannot  be  admitted 
in  the  course  of  the  Treasury  are  to  be  reported  to 
Congress  by  the  accounting  officers. 

Among  the  claims  inadmissible  in  the  ordinary 
course  of  the  Treasury  is  a  sum  of  90,574  dollars  of 
the  bills  of  credit,  commonly  called  new  emission 
money. 

2.  An  act  making  further  provision  for  the  ex 
penses  attending  the  intercourse  of  the  United 
States  with  foreign  nations,  etc.,  passed  March  20, 
1794. 

This  act  appropriates,  in  addition  to  former  pro 
visions,  one  million  of  dollars  for  the  purposes  men 
tioned  in  the  title,  to  be  paid  out  of  any  moneys 
which  may  be  in  the  Treasury  not  otherwise  appro 
priated,  and  to  be  applied  under  the  direction  of  the 
President  of  the  United  States  who  is  also  authorized, 
if  necessary,  to  borrow  the  whole  or  any  part  of  the 
sum ;  but  there  is  no  special  appropriation  either  for 
paying  the  interest  or  reimbursing  the  principal  of 
the  loan. 

The  act  already  quoted  of  the  9th  of  June,  1794, 
entitled  "An  act  making  appropriations  for  certain 
purposes  therein  expressed,"  with  a  view  to  remedy 
this  defect,  appropriates  out  of  the  proceeds  of  the 
taxes  laid  during  the  last  session  such  sum  as  shall 
be  sufficient  to  pay  the  interest  on  whatever  moneys 
may  be  borrowed,  pursuant  to  the  act  of  March  20, 
1794. 


VOL.  III.— 15. 


226  Alexander  Hamilton 

The  foregoing  review  of  the  laws  which  constitute 
the  fiscal  system  of  the  United  States  displays  these 
prominent  points  as  the  leading  features  of  that 
system : 

i  st.  That  all  the  current  revenues  of  the  United 
States  are  derived  from  these  sources,  to  wit:  IM 
PORTED  ARTICLES;  the  TONNAGE  of  ships  and  ves 
sels;  SPIRITS  distilled  within  the  United  States,  and 
STILLS;  the  POSTAGE  of  letters;  FEES  ON  PATENTS; 
DIVIDENDS  of  bank  stock;  SNUFF  manufactured 
within  the  United  States;  SUGAR  refined  within  the 
United  States;  SALES  AT  AUCTION;  LICENSES  to 
retail  wines  and  distilled  spirits ;  CARRIAGES  for  the 
conveyance  of  persons. 

2d.  That,  of  these  revenues,  the  principal  part  of 
the  duties  on  imported  articles,  those  on  the  tonnage 
of  ships  and  vessels,  those  on  distilled  spirits  and 
stills,  those  on  the  postage  of  letters,  patent  fees,  the 
dividends  on  bank  stock,  are  permanent  (the  three 
first  being  commensurate  with  the  existence  of  the 
debt  for  the  payment  of  the  interest  of  which  they 
are  pledged,  the  fourth  and  fifth  having  no  limit 
assigned  in  the  laws,  and  the  last  being  commen 
surate  with  the  duration  of  the  property  in  the 
stock),  all  the  others  temporary;  being  limited  to 
continue  no  longer  than  till  the  end  of  the  session 
of  Congress  next  after  the  expiration  of  two  years 
from  the  respective  times  of  passing  the  laws  which 
established  them,  except  the  temporary  duties  on 
imports  and  tonnage,  which  are  to  continue  till  the 
ist  of  January,  1797. 

3d.  That  the  permanent  duties  on  imported  art- 


Public  Credit  227 

icles,  the  tonnage  duties,  the  duties  on  spirits  dis 
tilled  within  the  United  States,  and  on  stills,  are 
subject  to  these  permanent  dispositions: 

1.  To  an  annual  reservation  of  600,000  dollars,  for 
the  support  of  the  Government  of  the  United  States 
and  their  common  defence. 

2.  To  an  appropriation  of  so  much  as  may  be 
necessary  to  pay  the  interest  on  the  foreign  loans, 
provided  for  by  the  funding  act. 

3.  To  an  appropriation  of  so  much  as  may  be 
necessary  to  pay  the  interest  on  the  stock  created 
by  the  loan  in  domestic  debt,  or  more  properly  in 
the  original  debt  of  the  United  States. 

4.  To  an  appropriation  of  so  much  as  may  be 
necessary  to   discharge  the  interest  on  the  stock 
created  by  the  loan  in  the  debts  of  the  respective 
States. 

5.  To  an  appropriation  of  so  much  as  may  be 
necessary  to  pay  the  interest  on  the  balances  due  to 
creditor  States,  which  dispositions  establish  prior 
ities,  according  to  the  order  in  which  they  are  here 
enumerated. 

4th.  That  the  surplus,  if  any,  of  the  duties  on 
spirits  distilled  within  the  United  States,  and  on 
stills,  has  an  ultimate  appropriation,  that  is,  to  the 
reduction  of  the  public  debt,  but  that  the  surpluses 
of  the  other  duties  have  no  such  ultimate  appropria 
tion. 

5th.  That  the  duties  on  the  postage  of  letters, 
and  the  net  dividend  on  bank  stock,  have  no  per 
manent  or  particular  appropriation. 

6th.  That  the  temporary  duties  are  charged  with 


228  Alexander  Hamilton 

a  specific  sum  of  1,292,137  dollars  and  38  cents;  and 
with  the  payment  of  interest  on  a  sum  of  1,000,000 
of  dollars,  authorized  to  be  borrowed  for  the  expenses  of 
foreign  intercourse. 

7th.  That  the  whole  of  the  foreign  debt,  and  all 
that  part  of  the  domestic  debt,  being  now  nearly  the 
whole,  which  consists  of  the  stock  created  by  the 
loans  in  the  original  debt  of  the  United  States,  and 
in  the  particular  debts  of  the  several  States,  and  by 
the  balances  due  to  creditor  States,  are  bottomed  on 
certain  specified  revenues,  pledged  or  hypothecated  for 
the  payment  of  the  interest  upon  them;  and  thus 
constitute  the  FUNDED  DEBT  of  the  United  States. 

8th.  That  the  funded  DOMESTIC  debt  of  the 
United  States  consists  of  three  species  of  stock,  one 
bearing  a  present  interest  of  six  per  cent,  per  annum ; 
another  bearing  a  like  interest  after  the  year  1800; 
a  third  bearing  a  present  interest  of  three  per  centum 
per  annum:  the  interest  in  each  case  payable  quarter 
yearly. 

gth.  That  the  six  per  cent,  stock,  present  and  de 
ferred,  can  be  redeemed  in  no  greater  proportion 
than  at  the  rate  of  eight  per  centum  per  annum  of 
the  original  sum,  on  account  both  of  principal  and 
interest ;  but  the  three  per  cent,  stock  is  redeemable 
at  pleasure. 

loth.  That  the  provision  for  subscribing  to  the 
loan  in  domestic  debt  expired  on  the  last  of  Decem 
ber,  1794,  and  that  no  further  provision  has  been 
made  for  the  unsubscribed  residue. 

nth.  That  the  funding  act  expressly  confirms  the 
contracts  and  rights  of  the  creditors  of  the  United 


Public  Credit  229 

States,  who  shall  not  think  fit  to  subscribe  to  the  loan, 
and  gives  an  expectation  to  them  of  further  and  other 
arrangements,  upon  the  event  of  the  propositions 
made  to  them. 

1 2th.  That  the  proceeds  of  all  the  lands  of  the 
United  States  in  the  Western  territory  are  appro 
priated  to  the  redemption  of  all  that  part  of  the 
public  debt  for  which,  prior  to  the  funding  act,  or  by 
virtue  thereof,  the  United  States  were  or  are  liable. 

1 3th.  That,  in  addition  to  this,  a  regular  SINKING 
FUND  has  been  successively  constituted,  to  be  ap 
plied  under  the  direction  of  five  principal  officers 
of  the  United  States,  with  the  approbation  of  the 
President,  hitherto  composed  of  three  parts:  ist. 
The  surplus  of  the  duties  on  imports  and  tonnage  to 
the  end  of  1790.  2dly.  The  proceeds  of  loans  not 
exceeding  two  millions  of  dollars,  authorized  to  be 
borrowed  for  the  purpose  (these  two  funds  to  be  in 
vested  in  purchases) ;  and  3dly  (in  which  the  two 
former  resolve  themselves),  the  interest  on  the  public 
debt,  purchased,  redeemed,  or  paid  into  the  Treasury, 
together  with  the  surpluses,  if  any,  of  the  moneys 
appropriated  for  interest,  to  be  applied  first  to  pur 
chases  of  the  debt  till  the  fund  is  equal  to  two  per 
centum  of  the  outstanding  stock,  bearing  a  present 
interest  of  six  per  cent. ;  second  to  the  redemption 
of  that  stock;  and  lastly,  to  purchases  of  any  un 
redeemed  residue  of  the  public  debt.  But  there  is 
reserved  out  of  this  fund  a  sum  not  exceeding  eight  per 
centum  per  annum,  toward  the  payment  of  interest 
and  reimbursing  of  the  principal  of  the  loans  made 
for  purchases  of  the  debt. 


230  Alexander  Hamilton 

To  this  recapitulation  of  the  leading  features  of 
our  fiscal  system,  it  may  be  useful  to  add  a  summary 
exhibition  of  certain  results,  which  appear  more  in 
detail,  or  are  deducible  from  the  tables  or  statements 
annexed  to  this  report. 

The  particulars  and  amount  of  the  debt  of  the 
United  States,  are  as  follow: 

Foreign  debt,  as  per  state 
ments  B  and  C  .  .  $14,599,129  35 

Deduct  instalment  of  for 
eign  debt  in  the  year 
1795,  to  be  paid  out  of 
proceeds  of  foreign 
loans  .  .  ,  .  .  853.750  oo 

: $13,745,379  35 

Funded  domestic  debt,  viz. : 

1.  Arising  from  origin 

al  domestic  debt, 
subscribed  to  loan 
proposed  by  fund 
ing  act : 
Stock  bearing  a  present 

interest  of  six  per  cent.  $17,912,138  01 
Stock  bearing  a  future  in 
terest  of  ditto      .         .       8,538,228  97 
Stock  bearing  an  interest 

of  three  per  cent.         .     12,275,347  55 

2.  Arising  from  State 

debts  assumed: 
Stock  bearing  a  present 

interest  of  six  per  cent.       7,908,374  19 
Stock  bearing  a  future  in 
terest  of  ditto    \k  ':      .       3,940,608  96 

Carried  forward      .  $50,574,697  68  $13, 745.379  35 


Public  Credit  231 

Brought  forward    .  $50,574,697  68  $13,745.379  35 

Stock  bearing  an  interest 

of  three  per  cent.       >  ,      5,944,115  70 
3.  Arising    from    bal 
ances  to  creditor 
States : 

Stock  bearing  a  present 

interest  of  six  per  cent.       2,345,056  oo 

Stock  bearing  a  future  in 
terest  of  ditto  .  .  1,172,528  oo 

Stock  bearing  an  interest 

of  three  per  cent.         .          703,516  80 

$60,789,914  18 

Unsubscribed  debt,  viz.: 

Principal,  exclusive  of 
loan-office  certificates, 
bearing  interest  on 
nominal  value  .  .  $1,072,583  40 

Interest  thereupon,  in 
cluding  indents  .  .  452,826  74 

Principal  of  loan-office 
certificates,  bearing  in 
terest  on  nominal  sum  .  2  7 , 93  5  oo 

Interest  thereon      .         .  7,830  oo 

$1,561,175  14 

Total  unredeemed  debt,  $76,096,468  67 

This  is  exclusive  of  a  sum  of  $1,400,000  due  to  the 
Bank  of  the  United  States,  on  account  of  the  loan  of 
$2,000,000  had  of  that  institution,  pursuant  to  the 
eleventh  section  of  the  act  by  which  it  is  incor 
porated,  and  which  is  not  included  in  the  mass  of 
the  debt,  because  it  is  more  than  counterbalanced 
by  a  greater  value  in  stock.  It  is  also  exclusive  of 


232  Alexander  Hamilton 

those  loans  which  are  temporary  anticipations  of 
the  revenue. 

The  particulars  and  amount  of  the  annual  current 
revenues  of  the  United  States,  are  as  follows: 

APPROPRIATED.  PERMANENT. 

Duties  on  imports  and  ton 
nage,  domestic  .  .  $4,199,791  67 

Duties  on  distilled  spirits 

and  stills  .  .  .  v  400,000  oo 

Fees  in  patents  .         .         .  660  oo 

UNAPPROPRIATED. 

Postage  of  letters        .         .          29,722  16 
Surplus  dividends  on  bank 

stock       ....         62,500  oo 

-  $4,692,673  83 

TEMPORARY. 

Temporary  duties  on  im 
ports  .  .  .  .  $1,479,626  91 

INTERNAL. 

Duties  on  snuff,  refined 
sugar,  sales  at  auction, 
licenses  to  retail  spirits 
and  wines,  carriages  for 

conveyance  of  persons    .       380,000  oo 

$1,859,626  91 


Total  annual  current  revenue,    $6,552,300  74 

The  particulars  and  amount  of  the  annual  stated 
expenditure  of  the  United  States,  computing  the 
army  and  navy  establishments  on  the  scale  of  an 
Indian  and  Algerine  war,  are  as  follows: 


Public  Credit  233 

Interest  on  the  foreign  debt  .  .  .  $638,480  58 
Interest  on  domestic  funded  debt  .  .  2,339,241  50 
Interest  on  unfunded  debt  .  .  .  66,031  10 
Interest  on  temporary  loans  .  .  .  100,000  oo 
Expenses  of  the  civil  Government,  includ 
ing  foreign  intercourse  .  .  ,v  475,249  53 
Expenses  of  military  land  service  .  .  1,511, 975  29 
Expenses  of  military  naval  service  .  .  441,508  80 
Miscellany  .  .  .  y  .  ,.  109,357  04 


Total  annual  expenditure,          $5,681,843  84 

This  sum  is  liable  to  be  increased  by  the  interest 
which  will  begin  to  accrue  on  the  deferred  stock  the 
first  of  January,  1801 ;  being,  on  the  present  amount 
of  that  stock,  871,401  dollars  and  92  cents. 

The  annual  force  of  the  sinking  fund,  as  depending 
on  ascertained  funds,  may  be  stated  as  follows: 

Interest  for  a  year,  on  sums  already  carried 

to  its  credit  .  .  .-;»...  .  $68,225  55 

Interest  for  a  year,  on  debts  of  foreign  officers, 
in  a  course  of  payment,  including  arrears 
of  interest  to  be  carried  to  the  credit  of 
this  fund  .  .  .  .  .  13,439  49 

Interest  for  a  year,  on  the  unexpended  surplus 
of  the  revenues  at  the  end  of  the  year 
1790,  being  411,659  dollars  49  cents,  sup 
posing  this  to  be  invested,  by  purchase, 
in  an  equal  sum  of  present  six-per-cent. 
stock  .  >  .....  24,699  56 


$106,364  60 

It  is  further  liable  to  be  increased  by  an  invest 
ment  in  purchases  of  865,098  dollars  n  cents,  which, 


234  Alexander  Hamilton 

together  with  the  sums  from  that  source  already  in 
vested  in  purchases  and  payments  will  amount  to 
2,000,000  of  dollars,  the  sum  authorized  to  be  bor 
rowed  for  purchases  of  the  debt. 

But,  as  this  auxiliary  depends  on  an  operation, 
not  only  future,  but,  in  some  degree,  casual,  it  can 
not  be  taken  into  an  estimate  of  the  actual  strength 
of  the  fund. 

The  proceeds  of  the  sales  of  Western  lands  must 
also  be  considered  as  an  eventual  resource. 

There  are  other  contingent  sources  of  augmenta 
tion,  not  computed,  because  they  are  contingent. 
But,  on  the  other  hand,  the  fund  is  liable  to  be  re 
duced  by  a  sum  reserved  out  of  it  for  the  payment 
of  principal  and  interest,  of  the  two  millions  au 
thorized  to  be  borrowed  for  purchases  not  exceeding 
eight  per  centum  per  annum. 

The  sum  applicable,  in  the  first  instance,  to  the 
redemption  of  that  portion  of  the  funded  debt  which 
bears  a  present  interest  of  six  per  centum,  excluding 
that  standing  to  the  credit  of  the  commissioners  of 
the  sinking  fund,  is  as  follows: 

Of  transferable  stock   .....  $516,410  24 
Of  untransferable  stock,  arising  from  bal 
ances  to  creditor  States         .        .        .      46,901  12 


$563.311  36 

The  sum  applicable,  in  the  first  instance,  that  is, 
on  the  ist  day  of  January,  1802,  to  the  redemption 
of  that  portion  of  the  funded  debt,  now  called 
deferred  stock,  excluding  that  standing  to  the  credit 


Public  Credit  235 

of  the  commissioners  of  the  sinking  fund,  will  be  as 
follows: 

Of  transferable  stock $249,576  75 

Of  untransferable  stock,  arising  from  bal 
ances  to  creditor  States         .        .       ' .      23,45056 

$273,027  31 

These  sums  would  complete  the  redemption  of 
the  whole  amount  of  the  stock  to  which  they  are 
applicable,  within  twenty- three  years  after  the  re 
demption  in  each  case  was  begun;  within  which 
terms  they  would  discharge  the  whole  of  the  public 
debt,  except  the  foreign  debt,  the  unsubscribed  debt, 
and  the  three-per-cent.  stock. 

If  the  redemption  of  the  present  six -per -cent, 
stock  commence  the  first  of  January,  1796,  and  the 
redeeming  fund  be  commensurate  with  the  whole  of 
the  unredeemed  stock  bearing  a  present  interest  of 
six  per  cent,  and  transferable,  the  revenue  set  free  in 
the  year  1818,  for  operations  upon  the  residue  of  the 
debt,  will  be  2,039,394  dollars  36  cents. 

If  the  redemption  of  the  deferred  debt  commence 
the  first  of  January,  1802,  when  it  may  rightfully 
commence,  and  the  redeeming  fund  be  commen 
surate  with  the  whole  of  that  stock,  unredeemed  and 
transferable,  the  revenue  set  free  in  the  year  1824, 
for  operations  upon  the  residue  of  the  public  debt, 
if  any  remain,  will  be  $998,307  02. 

The  revenue  set  free  by  these  successive  redemp 
tions  would  be  sufficient  to  redeem  the  whole  of  the 
present  foreign  debt  in  six  years;  that  is,  within  a 


236  Alexander  Hamilton 

term  of  twenty-eight  years  from  the  proposed  time 
for  commencing  the  redemption,  or  the  ist  of  Janu 
ary,  1796;  and,  after  extinguishing  the  foreign  debt, 
would  more  than  discharge  the  whole  of  the  balances 
to  creditor  States,  and  the  whole  of  the  unfunded 
debt  in  two  years  more. 

If  the  proceeds  of  the  lands  in  the  Western  terri 
tory  should  be  equal  to  three  million  of  dollars,  and 
the  three-per-cent.  stock  can  be  purchased  at  an 
average  of  twelve  shillings  in  the  pound,  that  fund 
would  suffice  to  pay  off  the  principal  of  the  three- 
per-cent.  stock,  in  something  more  than  twenty-five 
years. 

It  follows  that,  if  the  force  of  the  sinking  fund  be 
rendered  equal,  exclusive  of  the  proceeds  of  the 
sales  of  Western  lands,  to  the  redemption  of  the 
present  unredeemed  transferable  stock,  commencing 
the  ist  of  January,  1796,  as  to  that  bearing  a  present 
interest  of  six  per  centum,  and  the  ist  of  January, 
1802,  as  to  that  bearing  a  future  interest  of  six  per 
centum ;  and  if  the  proceeds  of  the  sales  of  Western 
lands  should  prove  equal  to  three  million  of  dollars, 
and  can  be  brought  into  action  for  purchases  of  the 
three-per-cent.  stock,  at  the  rate  above  mentioned, 
at  any  time  before  the  year  1801,  the  whole  of  the 
present  debt  of  the  United  States,  foreign  and 
domestic  (the  funds  appropriated  being,  during 
the  whole  period,  adequate  in  productiveness, 
and  inviolably  applied),  would  be  extinguished  in 
thirty  years.  And  there  would  then  revert  to 
the  United  States  an  annual  income  of  4,435,320 
dollars  and  89  cents.  Some  auxiliary  provisions, 


Public  Credit  237 

which  will  be  proposed,  may  greatly  accelerate  that 
result.1 

On  the  basis  of  the  foregoing  data,  the  Secretary  of 
the  Treasury  proceeds  to  submit  to  the  considera 
tion  of  Congress  certain  propositions  which  appear 
to  him  necessary  to  be  adopted  to  complete  our  sys 
tem  of  public  credit.  These  will  be  followed  by 
some  explanatory  remarks. 

I.  PROPOSITION 

That  further  provision  be  made,  with  regard  to 
the  yet  unsubscribed  debt  of  the  United  States,  as 
follows : 

i st.  Further  time  to  be  given,  until  the  end  of  the 
year  1795,  to  subscribe  the  same  to  the  loan  pro 
posed  by  the  funding  act ;  with  liberty  to  the  holders 
to  subscribe  the  arrears  of  interest  up  to  that  period 
separately  from  the  principal,  reserving  that  prin 
cipal  on  its  original  footing. 

2d.  An  appropriation  to  be  made  for  payment  of 
interest  on  so  much  of  the  principal  (excepting  loan- 
office  certificates  bearing  interest  on  the  nominal 
value)  as,  at  the  year  1795,  shall  remain  unsub 
scribed,  for  the  term  of  one  year,  according  to  the  rate 
or  rates  stipulated  by  the  original  contracts,  and  for 
the  payment  of  ten  per  centum  of  the  arrears  of  in 
terest  thereupon,  to  the  same  end  of  the  year  1795. 
This  payment  to  be  made  on  the  ist  of  January, 

1  These  results  are  not  stated  with  fractional  correctness,  because 
it  is  not  necessary  to  a  satisfactory  conclusion,  and  the  minuteness  of 
the  calculation  would  have  demanded  more  time  than  can  conveniently 
be  spared. 


238  Alexander  Hamilton 

1796,  at  the  Treasury,  where  no  particular  place  of 
payment  is  stipulated,  and  at  where  there 

is  one. 

3d.  The  specie  principal  of  the  loan-office  cer 
tificates,  which  bear  interest  on  the  nominal  value, 
together  with  the  arrears  of  interest,  to  be  im 
mediately  paid  off. 

II.  PROPOSITION 

That  provision  be  made  for  taking,  upon  loan  to 
the  United  States,  by  subscription  at  the  Treasury, 
the  outstanding  and  unbarred  new  emission  bills  of 
credit,  the  sums  subscribed  to  be  paid  in  the  prin 
cipal  only  of  those  bills,  and  the  stock  of  the  new 
loan  to  bear  an  interest  of  five  per  cent,  per  annum, 
payable  quarter  yearly  at  the  Treasury,  and  re 
deemable  at  the  pleasure  of  the  United  States  by 
payment  of  the  principal,  with  a  stipulation  to  pay 
the  same  at  the  expiration  of  thirty  years.  The 
loan  to  be  deemed  to  commence  on  the  ist  of  Janu 
ary,  1796,  and  to  rest  on  funds  permanently  pledged, 
namely,  the  permanent  revenues. 

III.  PROPOSITION 

That  provision  be  made  for  converting,  by  a  new 
loan,  the  whole  of  our  present  foreign  into  domestic 
debt,  upon  these  terms,  to  wit:  that,  for  any  sum 
subscribed  to  the  new  loan,  and  paid  in  the  prin 
cipal  of  the  present  foreign  debt  of  the  United  States, 
there  be  allowed,  in  addition  to  the  interest  now  pay 
able  upon  such  principal,  the  further  yearly  interest 


Public  Credit  239 

of  one  half  per  centum,  or,  in  lieu  thereof,  at  the 
option  of  each  subscriber,  an  equivalent  sum  in 
capital  stock,  bearing  an  interest  of  five  per  centum 
per  annum.  That  the  whole  interest  upon  the  new 
loan,  including  that  upon  the  capital  stock,  to  be 
given  as  an  equivalent  for  the  additional  one  half 
per  cent.,  shall  remain  fixed  until  the  first  day  of 
January,  1818,  at  which  time,  and  not  sooner,  the 
principal  of  the  said  new  loan,  including  the  said 
capital  stock  given  as  an  equivalent,  may  and  shall 
be  reimbursed,  except  as  to  such  subscribers  as  may 
prefer  a  shorter  term  of  reimbursement,  who  may 
elect  any  term  not  less  than  fifteen  years.  That  the 
permanent  revenues  shall  be  and  remain  firmly 
pledged  for  the  payment  of  the  said  interest,  until 
the  reimbursement  of  the  said  principal,  to  be  paid 
quarter  yearly,  as  that  of  the  present  funded  domestic 
debt.  And,  lastly,  that  the  commissioners  of  the 
sinking  fund  be  empowered,  with  the  approbation  of 
the  President,  to  provide,  by  new  loans,  for  the  re 
imbursement  of  any  instalment  or  part  of  principal 
of  the  present  foreign  debt,  or  of  the  loan  to  be  made 
thereupon,  as  aforesaid,  either  by  direct  borrowing 
or  by  sale  in  the  market,  of  certificates  of  stock,  so 
as  the  said  loan  or  the  said  certificates  of  stock  shall 
bear  an  interest  not  exceeding  six  per  centum  per 
annum,  and  shall  be  liable  to  reimbursement  within 
a  term  not  exceeding  twenty-four  years.  The  in 
terest  upon  the  capital  reimbursed,  and,  in  aid 
thereof,  the  permanent  revenues,  to  be  pledged  for 
the  interest  upon  the  loans  or  stock  to  be  made  or 
created  by  virtue  of  the  said  power. 


240  Alexander  Hamilton 

IV.  PROPOSITION 

That  the  temporary  duties  on  imports  be  made 
coextensive,  in  duration,  with  those  now  perman 
ent,  and  be  appropriated  in  like  manner;  and  that 
the  reservation  of  600,000  dollars,  annually,  out  of  the 
duties  on  imports  and  tonnage,  for  the  support  of 
the  Government  of  the  United  States,  and  their  com 
mon  defence,  be  postponed  till  after  the  appropria 
tions  for  the  interest  of  the  funded  debt,  foreign 
and  domestic,  and  for  the  SINKING  FUND. 

V.  PROPOSITION 

That  the  following  provisions  be  added  to  those 
heretofore  made,  for  reimbursing  and  redeeming  the 
debt  of  the  United  States : 

i  st.  To  direct,  by  law,  that  so  much  of  the  surplus 
of  the  duties  on  imports  and  tonnage,  to  the  end  of 
the  year  1790,  as  shall  remain  uninvested  in  pur 
chases,  on  the  ist  day  of  January,  1796,  shall  be  so 
invested,  one  fourth  part  within  the  month  of  April, 
another  fourth  part  within  the  month  of  July,  an 
other  fourth  part  within  the  month  of  October,  in 
that  year,  and  the  remainder  within  the  month  of 
January,  1797. 

2d.  To  exonerate  the  FUND  established  by  the  act, 
entitled  "An  act  supplementary  to  the  act  making 
provision  for  the  debt  of  the  United  States,"  passed 
the  8th  of  May,  1792,  from  the  payment  of  the  rate, 
per  annum,  which  by  the  4th  section  of  the  act  of 
the  1 2th  of  August,  1790,  entitled  "An  act  making 
provision  for  the  reduction  of  the  public  debt,"  is 


Public  Credit  241 

reserved,  on  account  of  the  principal  and  interest  of 
the  moneys  authorized,  by  that  act,  to  be  borrowed 
for  purchases  of  the  debt;  charging  the  interest  of 
the  moneys  so  borrowed,  upon  the  revenue  from 
imports  and  tonnage. 

3d.  To  appropriate  to  the  SAME  FUND,  so  much  of 
the  revenue  from  imports  and  tonnage,  as,  together 
with  the  other  moneys  now  constituting  the  fund,  and 
which  shall  accrue  to  it  by  virtue  of  the  foregoing  pro 
visions,  shall  be  sufficient,  from  year  to  year,  with  the 
interest  redeemed,  to  pay  the  sums  which  may,  of 
right,  be  annually  paid  on  account  of  the  principal 
of  such  funded  stock,  as,  on  the  ist  day  of  January, 
1796,  shall  bear  a  present  interest  of  6  per  centum 
per  annum,  excluding  that  which  shall  stand  to  the 
credit  of  the  commissioners  of  the  sinking  fund,  and 
that  which  shall  stand  to  the  credit  of  particular 
States,  on  account  of  the  balances  reported  in  their 
favor  by  the  commissioners  for  settling  accounts  be 
tween  the  United  States  and  individual  States;  to 
continue  so  appropriated  until  the  whole  of  the  said 
funded  stock  shall  be  redeemed,  and,  thenceforth,  un 
til  the  whole  residue  of  the  present  debt  of  the  United 
States,  foreign  and  domestic,  funded  and  unfunded, 
shall  be  redeemed  or  discharged. 

4th.  To  appropriate  to  the  SAME  FUND,  the  divi 
dends  on  the  stock  of  the  Bank  of  the  United  States 
belonging  to  the  United  States,  reserving,  from  time 
to  time,  so  much  thereof  as  may  be  necessary  to  pay 
interest  on  what  shall  remain  unpaid  of  the  loan  had 
of  the  said  bank,  pursuant  to  the  second  section  of 
the  act  of  incorporation,  and,  also,  so  much  of  the 

VOL.  III. — 16. 


242  Alexander  Hamilton 

duties  on  imports  and  tonnage  as,  together  with  those 
dividends  (deducting  what  may  be  necessary  to  pay 
interest),  shall  be  sufficient,  from  year  to  year,  to  pay 
off  the  instalments  of  the  said  loan,  hereafter  to 
grow  due,  and  as  (the  said  instalments  being  paid), 
together  with  any  other  moneys  which  on  the  ist  day  of 
January,  1802,  may  belong  to  the  said  fund  not  other 
wise  appropriated,  shall  be  sufficient,  from  year  to 
year,  with  the  interest  redeemed,  to  pay  the  sums 
which  may,  of  right,  be  annually  paid  on  account  of 
the  principal  of  such  funded  stock,  as,  at  the  ex 
piration  of  the  year  1800,  shall  begin  to  bear  an  in 
terest  of  six  per  cent,  per  annum,  excluding  that 
which  shall  stand  to  the  credit  of  the  commissioners 
of  the  SINKING  FUND,  and  that  which  shall  stand  to 
the  credit  of  particular  States,  on  account  of  the 
balances  reported  in  their  favor,  by  the  commis 
sioners  for  settling  accounts  between  the  United 
States  and  individual  States;  to  continue  so  ap 
propriated,  until,  as  well  the  last  mentioned  stock, 
as  the  instalments  of  the  loan  aforesaid,  shall  be 
fully  redeemed  and  discharged,  and,  thenceforth, 
until  the  whole  residue  of  the  present  debt  of  the 
United  States,  foreign  and  domestic,  funded  and  un 
funded,  shall  be  redeemed  and  discharged. 

5th.  To  continue  the  appropriation  to  the  SAME 
FUND,  of  the  interest  of  the  stock  which  shall  be  re 
deemed  by  virtue  of  the  foregoing  provisions  (when  the 
full  redemption  in  each  case  is  completed),  until  the 
WHOLE  of  the  PRESENT  DEBT  of  the  United  States, 
foreign  and  domestic,  funded  and  unfunded,  shall  be 
redeemed,  by  reimbursement,  purchase,  or  otherwise. 


Public  Credit  243 

6th.  To  provide  for  carrying  to  the  SAME  FUND, 
agreeably  to  the  appropriation  in  the  funding  act,  the 
proceeds  of  the  sales  of  the  lands  of  the  United  States 
in  the  Western  territory,  to  be  applied  according  to 
the  said  appropriation. 

7th.  To  appropriate  to  the  SAME  FUND,  to  be  em 
ployed  for  the  purposes  thereof,  all  moneys  which 
shall  be  received  for  debts  due  to  the  United  States, 
antecedent  to  the  present  constitution. 

8th.  To  provide  that  the  surpluses  of  all  the  cur 
rent  revenues  of  the  United  States,  which  shall  re 
main  at  the  end  of  any  calendar  year,  beyond  the 
amount  of  the  appropriations  charged  upon  them, 
and  which,  during  the  session  of  Congress,  com 
mencing  next  thereafter  shall  not  be  otherwise 
specially  appropriated  or  reserved,  shall  be  carried 
to  the  FUND  AFORESAID,  to  be  applied  to  the  pur 
poses  thereof. 

9th.  To  provide  for  paying  annually,  out  of  the 
SAID  FUND,  the  sum  which  may  be  rightfully  paid  in 
each  year,  toward  the  redemption  of  the  funded 
stock,  which  does  or  shall  bear  an  interest  of  six  per 
centum  per  annum,  excluding  that  which  shall 
stand  to  the  credit  of  the  commissioners  of  the  sink 
ing  fund,  and  that  which  shall  stand  to  the  credit  of 
particular  States  on  account  of  the  balances  reported 
in  their  favor  by  the  commissioners  for  settling  ac 
counts  between  the  United  States  and  individual 
States,  commencing  the  redemption  of  that  bearing 
a  present  interest  on  the  first  of  January,  1796,  and 
of  that  to  bear  interest  after  the  year  1800  on  the 
first  of  January,  1802,  and  pledging,  in  the  firmest 


244  Alexander  Hamilton 

manner,  the  faith  of  the  United  States  to  the  credit 
ors  thereof,  that  the  SAID  FUND  shall  be  inviolably 
applied  to  the  purpose  of  redeeming  the  stock  afore 
said,  and  afterward  to  the  redemption  of  the  whole 
of  the  PRESENT  DEBT  of  the  United  States,  foreign 
and  domestic,  funded  and  unfunded,  until  the  whole 
shall  be  fully  redeemed  and  discharged,  and  to  be 
vested  in  the  commissioners  of  the  sinking  fund,  as 
property  in  trust  for  the  creditors,  until  the  redemp 
tion  of  the  whole  of  the  present  debt  of  the  United 
States  shall  be  completed. 

Provided,  always,  that  whenever  THE  FUND  shall 
be  more  than  sufficient  for  paying  off,  as  they  accrue, 
the  remaining  instalments  of  the  said  loan  had  of  the 
Bank  of  the  United  States,  and  for  the  complete  and 
final  redemption  of  the  whole  of  the  aforesaid  stock, 
bearing  and  to  bear  an  interest  of  six  per  cent,  ac 
cording  to  the  right  reserved  for  that  purpose,  and 
also  for  the  payment  of  the  instalments  of  the 
present  foreign  debt,  or  of  such  new  loans  as  may  be 
made  thereupon,  pursuant  to  the  third  proposition, 
and  for  the  reimbursement,  purchase,  or  redemption 
of  the  residue  of  the  present  debt  of  the  United 
States,  within  the  term  of  thirty  years,  it  shall  be 
lawful  for  Congress,  if  at  war  with  any  foreign  Euro 
pean  Power,  to  apply  so  much  of  the  excess  as  they 
may  think  fit,  the  said  excess  being  certified  by  the 

COMMISSIONERS    OF   THE    SINKING    FUND,    toward    the 

expenses  of  such  war;  excepting  always  so  much 
of  the  said  excess  as  may  be  requisite  to  fulfil  any 
contracts  which  shall  have  been  entered  into  by  the 
commissioners  of  the  sinking  fund,  pursuant  to  the 


Public  Credit  245 

powers  vested  in  them ;  and  provided  that  no  second 
appropriation  of  any  such  excess  shall  derogate  from 
the  fund  once  reserved  for  the  redemption  or  purchase 
of  the  said  residue  of  the  debt,  within  the  said  term 
of  thirty  years. 

loth.  To  provide  that  all  reimbursements  of  the 
capital  of  the  public  debt,  foreign  and  domestic,  and 
of  the  remaining  instalments  of  the  aforesaid  loan 
of  the  Bank  of  the  United  States,  be  made  under  the 
superintendence  of  the  commissioners  of  the  sinking 
fund,  empowering  them,  with  the  approbation  of  the 
President  of  the  United  States,  as  the  instalments  of 
principal  become  due,  to  borrow,  if  necessary,  the 
sums  requisite  to  pay  those  instalments.  Provided, 
that  the  ultimate  term  for  the  reimbursement  of  any 
loan  they  may  make  shall  not  exceed  twenty-four 
years ;  the  interest  thereof  to  be  charged — first,  upon 
the  interest  of  the  instalments  which  shall  be  re 
imbursed  by  means  thereof,  except  the  instalments 
of  funded  six-per-cent.  stock;  secondly,  upon  the 
revenue  from  imports  and  tonnage,  to  make  good 
any  deficiency. 

VI.  PROPOSITION 

That  power  be  given  to  the  commissioners  of  the 
sinking  fund,  with  the  approbation  of  the  President, 
to  borrow,  from  time  to  time,  such  sums  as  may  be 
necessary  in  anticipation  of  the  revenues  appropri 
ated  for  the  purpose,  not  exceeding  in  one  year  one  mil 
lion  of  dollars,  to  be  reimbursed  within  a  year  from 
the  time  of  each  loan,  for  the  payment  of  the  inter 
est  which  shall  annually  accrue  on  the  public  debt. 


246  Alexander  Hamilton 

The  interest  upon  each  loan  to  be  defrayed  out  of 
the  permanent  revenues. 

VII.  PROPOSITION 

That  the  internal  revenues  from  snuff  and  refined 
sugar,  sales  at  auction,  licenses  to  sell  by  retail 
foreign  distilled  spirits  and  wines,  carriages  for  the 
conveyance  of  persons,  be  continued  to  the  first  day 
of  January,  1800,  and  that  the  reimbursement  of 
the  principal  of  the  loan  of  one  million  dollars,  au 
thorized  to  be  borrowed  for  defraying  the  expenses 
of  foreign  intercourse,  be  charged  upon  this  fund. 

VIII.  PROPOSITION 

That,  in  regard  to  any  sum  which  shall  have  re 
mained  unexpended  upon  any  appropriations  other 
than  for  the  payment  of  the  interest  of  the  funded 
debt  and  for  the  purposes  of  the  sinking  fund  for 
more  than  two  years  after  the  end  of  the  calendar 
year  in  which  the  act  of  appropriation  shall  have 
been  passed,  such  appropriation  shall  be  deemed  to 
cease  and  determine — and  the  sum  expended  upon 
it  shall  be  carried  to  an  account  to  be  denominated 
"THE  SURPLUS  FUND."  But  no  appropriation  shall 
be  so  deemed  to  have  ceased  or  determined  till  after 
the  year  1795,  unless  it  shall  appear  to  the  Secretary 
of  the  Treasury  that  the  object  of  such  appropriation 
has  been  fully  satisfied;  in  which  case  it  shall  be 
lawful  for  him  to  cause  to  be  carried  the  unexpended 
residue  thereof  to  the  account  aforesaid. 


Public  Credit  247 

IX.  PROPOSITION 

That  provision  be  made  that  all  priorities  hereto 
fore  established  in  the  appropriations  for  the  funded 
debt,  as  between  the  different  parts  of  said  debt, 
shall,  after  the  year  1796,  cease  with  respect  to  all 
creditors  of  the  United  States  who  do  not,  before  the 
expiration  of  the  period,  signify  their  dissent  there 
from  ;  and  that  thenceforth,  with  the  exception  only 
of  the  debts  of  those  creditors  who  shall  so  signify 
their  dissent,  the  revenues  charged  with  these  ap 
propriations  shall  constitute  a  common  or  consolid 
ated  fund,  chargeable  indiscriminately  and  without 
priority. 

X.  PROPOSITION 

That  provision  be  made  for  calling  in  all  outstand 
ing  loan-office  certificates,  certificates  called  final 
settlements,  and  indents  of  interest,  and  for  issuing 
in  lieu  of  them  other  certificates  of  equivalent  tenor, 
establishing  that  all  which  shall  not  be  presented  for 
exchange  within  the  term  of  two  years  shall  be 
barred. 

Remarks  upon  the  First  Proposition 

The  experiment  has  now  been  fully  tried,  and 
with  nearly  complete  success,  of  the  disposition  of 
the  public  creditors  to  accept  the  terms  offered  by 
the  funding  act.  Those  who  still  decline  have  proba 
bly  made  a  final  election  to  abide  by  their  original 
contracts. 

It  remains  to  fulfil  them.     This,  the  moral  obliga- 


248  Alexander  Hamilton 

tion  of  the  contracts,  the  new  and  peremptory  sanc 
tion  given  to  them  by  the  present  Government,  and 
the  essential  maxims  of  public  credit,  unite  to  de 
mand;  and,  while  these  cogent  motives,  affecting 
intimately  the  permanent  character  and  general  in 
terest  of  the  United  States,  recommend  the  measure, 
there  is  now  no  longer  any  momentary  inducement, 
from  situation,  to  procrastinate. 

The  present  advanced  state  of  the  national 
finances,  and  the  inconsiderable  magnitude  of  the 
still  unsubscribed  debt,  render  it  of  little,  if  any, 
consequence  to  obtain  upon  it  the  temporary  ac 
commodation  of  deferring  the  payment  of  a  part  of 
the  interest  accruing  according  to  contract.  This 
motive  apart,  and  considering  the  approximation 
of  the  period  when  the  payment  of  interest  on  the 
deferred  debt  is  to  commence,  the  chance  of  bene 
fiting  by  a  fall  of  the  market  rate  of  interest,  incident 
to  a  provision  for  the  debt  on  the  terms  of  the  con 
tract,  which  make  it  redeemable  at  pleasure,  may  be 
found  more  advantageous  to  the  Government,  than 
the  partial  postponement  of  interest  encumbered 
with  an  abridgment  of  the  right  of  redemption. 

To  those  who  should  not  rightly  appreciate  this 
circumstance,  it  might  seem  an  objection,  that  the 
provision  proposed  would  place  those  creditors  who 
had  not  consented  to  accommodate  the  Govern 
ment,  upon  a  better  footing  than  those  who  had 
so  consented. 

But  a  scruple  of  this  kind  is  overruled  by  several 
considerations. 

i  st.  It  is  not  improbable  that  a  considerable  pro- 


Public  Credit  249 

portion  of  those  who  may  not  have  accepted  the 
terms  offered  by  the  funding  act,  are  executors  and 
other  trustees,  who  may  have  doubted  their  power 
to  accept. 

2d.  Giving  the  fullest  force  to  the  fact  which  is 
the  ground  of  the  objection,  it  is  one  of  those  cases 
in  which  the  general  principles  that  constitute  the 
permanent  happiness  of  society,  give  the  less  merit 
orious  advantages  over  the  more  meritorious.  All 
the  creditors  had  a  right  to  conform,  or  not.  Those 
who  have  not  done  it  have  only  used  their  right,  and 
it  cannot  be  matter  of  objection  or  prejudice  to  them. 
To  delay  indefinitely  a  provision  for  their  claims,  ac 
cording  to  contract,  is  to  annihilate  the  contract. 

The  complying  creditors  cannot  with  propriety 
complain.  They  were  informed  unequivocally  that 
the  proposal  of  a  new  loan  was  referred  to  their  free 
choice;  that  the  rights  of  those  who  did  not  assent 
would  remain  unimpaired;  and  compensations  were 
offered  in  the  new  contracts  for  the  surrender  of 
the  old.  A  plea  that  an  ultimate  provision  was  not 
relied  upon  could  not  be  admitted,  because  it  would 
be  to  convert  a  distrust  of  the  faith  of  the  Govern 
ment  into  an  argument  against  its  being  observed 
towards  those  who  had  depended  upon  it. 

But  the  complying  creditors  actually  received 
valuable  considerations  for  the  modification  of  their 
claims,  instead  of  annual  provision  for  their  interest, 
which  alone  their  contracts,  as  they  stood  previous 
to  the  funding  act,  required;  they  have  had  it  se 
cured  by  adequate  funds  permanently  mortgaged  for 
its  payment. 


250  Alexander  Hamilton 

Instead  of  the  stipulated  annuity  being  redeemable 
at  pleasure,  whenever  a  fall  in  the  market  rate  of  in 
terest  should  render  it  advantageous  to  pay  off  the 
principal,  it  has  acquired  a  more  fixed  character  by 
the  relinquishment  of  the  right  of  the  Government 
to  redeem,  except  in  certain  proportions,  and  a 
capacity  to  increase  in  capital  value,  by  a  declension 
of  the  market  rate  of  interest. 

Instead  of  receiving  their  interest  in  one  pay 
ment,  at  the  end  of  a  year,  they  receive  it  in 
quarter-yearly  portions,  which  makes  it,  in  fact, 
6.15  per  cent,  in  lieu  of  the  stipulated  rate  of  six 
per  centum. 

On  the  first  point  it  has  been  argued  that,  suppos 
ing  a  steady  preservation  of  its  faith  by  the  Govern 
ment,  it  is  indifferent  to  the  creditor  whether  his 
demand  stands  upon  the  basis  of  an  annual  provision, 
or  upon  that  of  mortgaged  funds. 

This  is  to  substitute  theory  to  fact.  As  well  with 
regard  to  a  government  as  to  an  individual,  there 
is,  in  the  nature  of  things,  an  intrinsic  difference  be 
tween  the  value  of  a  debt  bottomed  on  mortgaged 
funds,  and  that  of  a  debt  resting  on  what  is  called, 
in  the  one  case,  and  may  be  called  in  the  other,  per 
sonal  security.  The  degree  of  this  difference,  and 
some  of  the  circumstances  on  which  it  depends,  may 
be  different  in  the  two  cases,  but  the  reality  of  its 
existence  can  be  denied  in  neither. 

Government,  being  administered  by  men,  is  na 
turally,  like  individuals,  subject  to  particular  im 
pulses,  passions,  prejudices,  vices;  of  course  to 
inconstancy  of  views  and  mutability  of  conduct. 


Public  Credit  251 

A  kind  of  property,  of  which  the  essence  is  con 
tract,  must  necessarily,  therefore,  be  more  or  less 
valuable,  because  more  or  less  secure,  in  proportion 
as  it  is  little  or  much  exposed  to  the  influence  of  that 
inconstancy  or  that  mutability. 

If  a  provision  is  to  be  made  by  a  new  resolution 
every  year,  that  resolution,  being  always  liable  to 
be  affected  by  momentary  circumstances,  is  always 
casual. 

If  made  once  for  all,  it  continues,  of  course,  unless 
revoked  by  some  positive  act,  and  has  for  that 
reason  a  moral  certainty  of  stability. 

But  why,  it  might  be  asked,  if  a  disposition  un 
faithful  to  the  public  engagements,  or  unfriendly  to 
the  public  credit,  should  exist,  would  it  not  operate 
to  produce  a  violation  of  a  provision  made,  as  well 
as  to  prevent  the  making  of  one  ? 

The  two  things  are  widely  different.  To  undo, 
which  is  to  act,  and  in  such  a  case  to  act  with 
violence,  requires  more  enterprise  and  vigor,  and 
presupposes  greater  energy,  or  a  stronger  impulse, 
than  not  to  do  or  to  forbear  to  act.  This  is  par 
ticularly  true  where  a  number  of  wills  is  to  con 
cur.  Many  men  who  will  not  rouse  to  the  effort,  or 
encounter  the  responsibility  of  doing  mischief  by 
positive  acts,  will  readily  enough  slide  into  it  by 
a  negative  conduct  —  that  is,  by  omitting  to  act. 
Many  men,  merely  from  easiness  of  temper  or  want 
of  active  fortitude,  will  suffer  evil  to  take  place 
which  they  neither  desire  nor  would  themselves  com 
mit.  In  collective  bodies,  votes  are  necessary  to 
ACTION:  absences  may  produce  INACTION.  It  often 


25 2  Alexander  Hamilton 

happens  that  a  majority  of  voices  could  not  be 
had  to  a  resolution  to  undo  or  reverse  a  thing  once 
done,  which  there  would  not  be  a  majority  of  voices 
to  do. 

This  reasoning  acquires  tenfold  force  when  applied 
to  a  complex  government  like  ours;  that  is,  to  a 
government  distributed  into  departments,  acting 
through  different  organs,  which  must  concur  to 
give  it  motion;  as,  in  our  Constitution,  the  HOUSE 
OF  REPRESENTATIVES,  the  SENATE,  and  the  PRESI 
DENT. 

In  delicate  and  difficult  cases,  whether  to  issue  in 
good  or  ill,  a  suspension  of  action  is  far  more  natural 
to  such  a  government  than  action. 

It  can  hardly  happen  that  all  the  branches  or 
parts  of  it  can  be  infected  at  one  time  with  a  common 
passion,  or  disposition,  so  manifestly  inimical  to 
justice  and  the  public  good,  as  to  prostrate  the  pub 
lic  credit,  by  revoking  a  pledge,  given  to  the  credit 
ors.  It  is  far  more  probable  that  such  a  disposition 
should,  at  one  time,  possess  one  part,  at  another 
time,  another  part.  Possessing  either  part,  it  might 
be  sufficient  to  obstruct  a  provision  which  was  to 
be  made.  Without  possessing  all  the  parts,  it  could 
not  subvert  one  which  had  been  made.  The  last  can 
scarcely  be  supposed,  except  in  one  of  those  extra 
ordinary  crises  of  nations  which  confound  all  ordin 
ary  calculations. 

Hence  the  value  of  property  in  public  debt,  which 
rests  on  specified  and  competent  funds,  firmly 
pledged  for  the  satisfaction  of  the  creditor,  is  in 
trinsically  greater,  and  to  a  considerable  extent, 


Public  Credit  253 

than  that  of  property  in  public  debt,  which  depends 
on  annual  provision.  Hence,  too,  a  creditor  to 
whom  such  a  pledge  was  not  stipulated,  may  be 
justly  said  to  have  received  a  compensation  for  the 
relinquishment  of  a  portion  of  his  interest. 

On  the  second  point,  it  has  been  observed,  with 
less  plausibility,  that,  in  this  country,  where  it  would 
be  to  the  advantage  of  the  creditor  to  receive  his 
principal,  rather  than  a  rate  of  six-per-cent.  interest, 
the  abridgment  of  the  right  of  redemption  is  of  no 
value. 

i  st.  The  proposition  is  not  universally  true. 

It  depends  on  the  particular  situation  of  a  creditor, 
whether  it  be  his  interest  to  be  reimbursed  his  prin 
cipal  or  not.  It  is  believed,  owing  to  the  impunc- 
tuality  of  collections,  that  in  no  part  of  the  United 
States  does  fair  lending  at  private  interest,  upon 
real  security,  net  six  per  cent. 

2d.  As  far  as  it  is  true,  it  does  not  authorize  the 
inference  which  is  drawn,  because  the  creditor  can 
not  demand  his  principal  when  it  suits  him,  but  must 
wait  till  it  is  convenient  for  the  Government  to  pay. 
This  convenience  might  not  exist  till  there  was  a  fall 
in  the  market  rate  of  interest,  and  then  it  would  not 
be  the  interest  of  the  creditor  to  receive. 

Unable  to  exact  the  principal  when  he  pleases,  it 
is  a  material  point  gained  to  be  able  to  arrest  the 
hand  of  the  Government  from  paying  him  when  it 
is  his  interest  not  to  receive.  It  is  evident,  that 
whenever  the  rate  of  interest  to  which  he  is  entitled 
shall  exceed  the  market  rate,  if  he  cannot  be  obliged 
to  receive  back  his  principal,  or  take  the  market 


254  Alexander  Hamilton 

rate,  his  stock  must  rise  in  value  in  proportion  to 
the  difference  and  degree  of  its  duration. 

Nor  is  an  idea  which  has  been  entertained  just, 
that  this  advantage  is  remote  and  contingent,  to 
accrue  only  to  those  who  may  be  holders  at  the  time 
of  the  fall  of  interest,  at  the  expense  of  those  who 
were  holders  when  the  funding  act  passed,  many  of 
whom,  as  it  is  alleged,  being  obliged  to  alienate  then 
or  shortly  after,  suffered  loss  in  the  sale,  from  the 
postponement  of  a  part  of  their  interest,  without 
benefiting  by  the  supposed  equivalents. 

The  fairness  of  an  equivalent  ought  never  to 
be  tested  by  the  necessities  of  particular  indi 
viduals.  It  ought  to  be  estimated  by  the  general 
principles  of  value;  by  the  natural  and  real  opera 
tion  of  things.  Admitting,  therefore,  the  sugges 
tion,  as  to  such  individuals,  to  be  true,  it  would 
decide  nothing. 

But  it  is  not  true.  The  permanency  of  a  high 
rate  of  interest,  and  the  possibility  of  a  future  rise 
of  the  capital  above  par,  by  the  fall  of  the  market 
rate  below  the  stipulated  rate,  were,  to  the  first 
holders  of  stock,  circumstances  of  present  value. 

Foreigners,  especially,  whose  purchases  would 
necessarily  influence  the  market,  would  give  higher 
prices  for  it  on  these  accounts. 

And  when  to  this  are  added  the  funding  of  the 
new  stock  and  the  payment  of  the  interest  quarter 
yearly,  there  is  solid  ground  for  entertaining  an 
opinion  that  the  stock  has,  from  the  earliest  period, 
borne  a  better  price  in  the  market  than  upon  the 
principle  of  an  annual  payment  of  six  per  cent. 


Public  Credit  255 

on  the  whole  capital  depending  upon  an  annual 
provision. 

This  opinion  would  be  confirmed,  if  we  should  take 
as  a  guide  what  actually  happened  in  one  or  more  of 
the  States  which  made  annual  provision  for  the  pay 
ment  of  interest  upon  their  debts,  at  the  stipulated 
rate  of  six  per  cent.  With  this  provision  the  market 
price  of  their  stock  rarely  exceeded  thirty-three  and 
one  third  per  centum. 

It  is  probable  that  greater  confidence  in  the 
ability  and  constancy  of  views  of  the  Government 
of  the  United  States  might  have  given  a  greater 
value  to  their  stock  in  a  like  situation.  But  it  is  not 
to  be  doubted  that  it  would  have  felt,  in  a  great 
degree,  a  similar  effect  of  that  situation. 

This  may  not  appear  with  respect  to  the  small 
amount  of  unsubscribed  debt,  now  to  be  provided 
for,  and  with  the  advantage  of  a  confirmation  of 
confidence  by  experience;  but  it  could  not  have 
failed  to  have  been  very  apparent,  if  the  whole  debt 
had  been  provided  for  on  this  plan. 

These  observations  serve  to  render  it  probable 
that  the  creditors  who  have  accepted  the  terms 
offered  by  the  Government  have  not  been  injured 
by  the  acceptance;  that,  if  they  had  now  an  option 
to  change  their  ground  for  that  which  is  now  pro 
posed  for  non-subscribers,  it  would  be  an  ill-judged 
choice  in  them  to  do  it;  and  that,  upon  these,  as 
well  as  other  accounts,  they  will  have  no  cause  to  be 
dissatisfied  with  the  proposal  under  consideration. 

Let  it  be  added,  that,  whether  the  non-subscribers 
shall  fare  better  or  not  by  that  proposal  than  the 


256  Alexander  Hamilton 

subscribers,  it  is  the  interest  of  all  the  public  credit 
ors  upon  principle  and  precedent,  that  the  public 
faith  should  be  preserved  toward  those  non-sub 
scribers. 

But,  at  the  same  time,  every  consideration  con 
nected  with  the  question,  urges  that  nothing  more 
should  be  done  for  non-subscribers  than  is  positively 
due  to  good  faith.  Accordingly,  the  proposition 
contemplates  that  their  debt  shall  not  be  funded, 
but  that  provision  shall  be  annually  made. 

With  regard  to  arrears  of  interest,  a  tenth  part 
only  is  proposed  to  be  paid  on  the  first  of  January, 
1796.  At  this  rate  they  would  be  paid  off  in  ten 
years. 

In  strictness,  they  ought  to  be  immediately  dis 
charged.  But  to  have  done  this  on  the  whole  debt 
would  have  been  impracticable;  to  do  it  on  what 
now  remains  unsubscribed  would  not  only  be  un 
equal,  but  would,  at  the  present  moment,  obstruct 
arrangements  which  are  conducive  to  the  general 
interests  of  the  creditors.  The  state  of  the  Treasury 
in  succeeding  years  will  enable  Congress  to  decide 
how  far  the  payment  can  be  accelerated.  In  the 
meantime,  the  creditors  have  an  option  to  separate 
these  arrears  from  the  principal,  and  to  fund  them 
at  three  per  cent.,  as  has  been  done  generally  with 
regard  to  interest.  The  case  of  a  large  arrear  of 
interest,  arising  from  the  inability  of  a  former  gov 
ernment,  which  is  the  present  case,  is  liable  to  some 
peculiar  considerations. 

A  difference  is  made  in  the  special  case  of  the  loan- 
office  certificates,  which,  by  contract,  are  entitled  to 


Public  Credit  257 

interest  of  six  per  cent,  on  the  nominal  principal, 
redeemable  only  by  payment  of  the  specie  principal. 

This  is  too  disadvantageous  a  footing  for  the  Gov 
ernment. 

The  alternative  most  convenient  at  this  time  is  to 
pay  off  the  debt,  which  is  proposed.  To  elude  this 
contract,  would  be  to  sacrifice  a  very  great  principle 
to  a  very  little  interest. 

The  amount  will  be  seen  in  the  statement  A. 

Remarks  upon  the  Second  Proposition 

The  certificates,  or  bills  of  credit,  called  new  emis 
sion  money,  were  emitted  pursuant  to  a  resolution 
of  Congress,  of  the  i8th  of  March,  1780,  which  di 
rects  them  to  be  emitted  upon  the  funds  of  individual 
States,  to  bear  an  interest  of  five  per  centum  per 
annum,  payable  in  specie,  at  the  redemption  of  the 
bills;  or,  at  the  election  of  the  holder,  annually,  at 
the  Continental  loan  offices,  in  sterling  bills  drawn  by 
the  United  States  upon  their  commissioners  in  Europe, 
and  pledges  the  faith  of  the  United  States  for  the 
payment  of  the  said  bills,  in  case  any  State  on  whose 
funds  they  should  be  emitted,  should,  by  the  events  of 
war,  be  rendered  incapable  to  redeem  them;  directing, 
also,  an  endorsement  to  be  made  upon  each  bill, 
in  these  words:  "The  United  States  insure  the 
payment  of  the  within  bill,  and  will  draw  bills  of 
exchange  for  the  interest,  annually,  if  demanded, 
according  to  a  resolution  of  Congress,  of  the  i8th 
of  March,  1780." 

These  resolutions,  and  the  endorsement  upon  the 


VOL.  III.— 17. 


258  Alexander  Hamilton 

bills,  engage  the  absolute  promise  of  the  United 
States  for  the  payment  of  the  interest  indefinitely, 
and  their  eventual  guaranty  of  the  principal,  in  case 
any  State  on  whose  funds  the  bills  should  be  emitted 
should,  by  the  events  of  war,  be  rendered  incapable 
to  redeem  them;  which  is,  in  effect,  though  not  in 
form,  an  absolute  guaranty  of  the  principal :  for  the 
United  States  are  bound  to  pay  the  interest  per 
petually  till  that  is  discharged. 

Good  faith  demands  that  the  United  States  should 
supply  the  omissions  of  the  States  which  issued  the 
bills,  by  providing  themselves,  at  least,  for  the  in 
terest  upon  them. 

But  it  is  not  as  easy  to  pronounce  on  what  terms 
they  ought  to  be  provided  for. 

On  their  face,  and  according  to  the  unr  evoked 
resolutions  of  Congress,  they  are  of  specie  value, 
equal  to  their  nominal  amount,  and  bearing  five- 
per-cent.  interest. 

But  it  is  known  that  they  were  issued  by  different 
States,  at  different  values,  fixed  by  previous  laws. 
The  true  nature  of  the  contract,  therefore,  in  fact, 
and  the  true  equity  of  the  case,  are,  from  these  cir 
cumstances,  involved  in  some  question. 

A  compromise  by  a  new  agreement,  seems  the  best 
road  out  of  the  difficulty. 

This  is  the  aim  of  the  proposition,  which,  it  is 
hoped,  will,  in  the  main,  reasonably  consult  all 
interests. 

There  have  been  special  references  of  this  subject 
to  the  Secretary,  but  he  purposely  declined  a  report 
till  the  expiration  of  the  term  limited  by  the  act, 


Public  Credit  259 

entitled  "An  act  relative  to  claims  against  the 
United  States  not  barred  by  any  act  of  limitation, 
and  which  have  not  been  already  adjusted,"  passed 
the  1 2th  of  February,  1793,  had  obviated  a  danger 
to  which  the  business  was  exposed.  It  is  now  ascer 
tained  that  the  amount  for  which  the  United  States 
shall  be  in  future  liable,  is  $90,574.  The  sums  sub 
scribed  to  the  loan  will,  of  course,  be  a  charge  against 
the  States  which  respectively  issued  the  bills. 

Remarks  on  the  Third  Proposition 

The  payment  of  interest  and  instalments  of  prin 
cipal  of  our  foreign  debt,  in  the  countries  where 
it  was  contracted,  is  found  by  experience  to  be  at 
tended  with  difficulty,  embarrassment,  some  loss, 
and  a  degree  of  casualty  which  occasionally  puts  in 
jeopardy  the  national  credit.  Loans  for  reimburse 
ment  must  be  made  beforehand,  as  the  market  suits, 
and  necessarily  involve  double  interest  for  a  greater 
or  less  time.  The  procuring  of  bills  to  be  remitted 
for  payment  of  interest  cannot  be  depended  upon 
in  coincidence  with  the  periods  of  payment,  which, 
co-operating  with  distance,  renders  inconvenient  an 
ticipations  necessary. 

The  remitting  in  commodities  would  be  liable  to 
other  casualties  and  to  some  peculiar  objections; 
and  whatever  mode  be  adopted,  it  may  be  frequently 
not  practicable  to  deposit  in  season  the  necessary 
funds  on  the  spot  without  great  sacrifices.  If,  there 
fore,  the  place  of  these  payments  could,  with  consent 
of  the  creditors,  upon  an  equitable  indemnifica 
tion  to  them  for  the  transfer,  be  changed  to  the 


260  Alexander  Hamilton 

United  States,  the  operation  would  be  in  various 
lights  beneficial.  It  has  occurred  that  the  present 
posture  of  the  affairs  of  Europe  might  favor  a  plan 
of  this  kind,  and  perhaps  produce  some  collateral 
advantages.  Under  this  idea,  an  experiment  is  pro 
posed.  The  proposed  augmentation  of  interest  is 
intended  as  an  indemnification  for  the  expense  and 
hazard  of  agencies  in  this  country,  delays  in  remit 
tance,  inconvenience  of  distant  negotiation,  renunci 
ation  of  the  facilities  which  attend  the  receipt  of 
interest  at  home,  risks  of  loss  by  exchange,  etc.,  and 
is  calculated  on  a  liberal  scale,  in  order  to  induce  an 
acceptance  of  the  proposition. 

If,  instead  of  an  increase  of  interest,  the  option  of 
an  equivalent  be  given  by  way  of  premium,  in  stock 
bearing  an  interest  of  five  per  cent.,  it  would  have 
attractions  for  certain  creditors,  and  would  facilitate 
the  success  of  the  measure.  On  strict  calculation, 
the  equivalent  would  be  six  dollars  and  fifty-eight 
cents  per  one  hundred  dollars,  of  the  principal  sub 
scribed.  It  is  not  perceived  that  the  interests  of  the 
United  States  could  suffer  by  allowing  the  alternat 
ive.  The  fixing  of  the  rate  of  interest,  by  postpon 
ing  the  reimbursement  to  the  year  1818,  would  also 
be  a  powerful  inducement,  and  till  the  period  of 
reimbursement  arrives,  any  surplus  of  the  sinking 
fund  which  may  exist  can  be  invested  in  purchases, 
so  as  to  prevent  the  progress  of  the  fund  being 
arrested. 

It  could  not  be  necessary  to  observe,  except  for 
the  sake  of  dispelling  jealousy  or  apprehension  on  the 
part  of  the  creditors,  that,  while  the  plan  is  in  experi- 


Public  Credit  261 

ment,  and  afterwards,  with  regard  to  all  who  do  not 
embrace  it,  every  thing  is  to  proceed  as  heretofore, 
and  as  the  contracts  respecting  the  debt  require. 

The  auxiliary  proposition  of  giving  power  to  the 
commissioners  of  the  sinking  fund  to  remit  certifi 
cates  for  sale  is  founded  upon  a  belief  that  this 
operation  will  sometimes  be  practicable,  where  di 
rect  loans  cannot  be  effected,  and  will  be  occasion 
ally  a  more  beneficial  mode  of  remittance  than  by 
bills  of  exchange. 

Remark  on  the  Fourth  Proposition 

The  object  of  this  proposition  is  to  give  moral  cer 
tainty  to  the  adequateness  of  the  fund  for  paying  the 
interest  upon  the  debt,  and  for  its  ultimate  redemp 
tion,  making  a  reasonable  allowance  for  the  casual 
ties  to  which  it  is  exposed. 

Remarks  on  the  Fifth  Proposition 

There  is  no  sentiment  which  can  better  deserve  the 
serious  attention  of  the  legislators  of  a  country  than 
the  one  expressed  in  the  speech  of  the  President, 
which  indicates  the  danger  to  every  government 
from  the  progressive  accumulation  of  debt.  A  tend 
ency  to  it  is,  perhaps,  the  natural  disease  of  all  gov 
ernments;  and  it  is  not  easy  to  conceive  any  thing 
more  likely  than  this  to  lead  to  great  and  convulsive 
revolutions  of  empire. 

On  the  one  hand,  the  exigencies  of  a  nation,  creat 
ing  new  causes  of  expenditure,  as  well  from  its  own, 
as  from  the  ambition,  rapacity,  injustice,  intemper 
ance,  and  folly  of  other  nations,  proceed  in  increasing 


Alexander  Hamilton 

and  rapid  succession.  On  the  other,  there  is  a  gen 
eral  propensity  in  those  who  administer  the  affairs 
of  a  government,  founded  in  the  constitution  of 
man,  to  shift  off  the  burden  from  the  present  to  a 
future  day — a  propensity  which  may  be  expected 
to  be  strong  in  proportion  as  the  form  of  a  state  is 
popular. 

To  extinguish  a  debt  which  exists,  and  to  avoid 
the  contracting  more,  are  ideas  always  favored  by 
public  feeling  and  opinion:  but  to  pay  taxes  for  the 
one  or  the  other  purpose,  which  are  the  only  means 
of  avoiding  the  evil,  is  always,  more  or  less,  unpopu 
lar.  These  contradictions  are  in  human  nature ;  and 
happy,  indeed,  would  be  the  lot  of  a  country  that 
should  ever  want  men  ready  to  turn  them  to  the 
account  of  their  own  popularity,  or  to  some  other 
sinister  account. 

Hence,  it  is  no  uncommon  spectacle  to  see  the 
same  men  clamoring  for  occasions  of  expense,  when 
they  happen  to  be  in  unison  with  the  present  humor 
of  the  community,  whether  well  or  ill  directed,  de 
claiming  against  a  public  debt,  and  for  the  reduction 
of  it  as  an  abstract  thesis;  yet  vehement  against 
every  plan  of  taxation  which  is  proposed  to  discharge 
old  debts,  or  to  avoid  new,  by  the  defraying  expenses 
of  exigencies  as  they  emerge. 

These  unhandsome  arts  throw  artificial  embarrass 
ment  in  the  way  of  the  administrators  of  a  govern 
ment,  and,  co-operating  with  the  desire  which  they 
themselves  are  too  apt  to  feel  to  conciliate  public 
favor,  by  declining  to  lay  even  necessary  burthens, 
or  with  the  fear  of  losing  it,  by  imposing  them  with 


Public  Credit  263 

firmness,  serve  to  promote  the  accumulation  of  debt, 
by  leaving  that  which  exists  without  adequate  pro 
vision  for  its  reimbursement,  and  by  preventing  the 
levying,  with  energy,  new  taxes,  when  new  occasions 
of  expense  occur.  The  consequence  is,  that  the  pub 
lic  debt  swells  till  its  magnitude  becomes  enormous, 
and  the  burthens  of  the  people  gradually  increase, 
till  their  weight  becomes  intolerable.  Of  such  a  state 
of  things,  great  disorders  in  the  whole  political  eco 
nomy,  convulsions  and  revolutions  of  government, 
are  a  natural  offspring. 

There  can  be  no  more  sacred  obligation,  then,  on 
the  public  agents  of  a  nation,  than  to  guard,  with 
provident  foresight  and  inflexible  perseverance, 
against  so  mischievous  a  result.  True  patriotism 
and  genuine  policy  cannot,  it  is  respectfully  pre 
sumed,  be  better  demonstrated  by  those  of  the 
United  States,  at  the  present  juncture,  than  by  im 
proving,  efficaciously,  the  very  favorable  situation  in 
which  they  stand,  for  extinguishing,  with  reasonable 
celerity,  the  actual  debt  of  the  country,  and  for  lay 
ing  the  foundation  of  a  system  which  may  shield 
posterity  from  the  consequences  of  the  usual  im 
providence  and  selfishness  of  its  ancestors,  and  which, 
if  possible,  may  give  IMMORTALITY  TO  PUBLIC  CREDIT. 

Fortunately  for  the  first  object,  the  circumstances 
in  our  foreign  affairs,  which,  during  the  last  session, 
impelled  to  an  extension  of  the  national  revenues, 
have  left  little  more  to  do  than  to  apply  the  existing 
means  with  decision  and  efficacy. 

The  second  object  will  depend  on  the  establish 
ment  of  wise  principles  in  the  application,  fitted  to 


264  Alexander  Hamilton 

become  a  permanent  precedent  in  the  fiscal  system 
of  the  country. 

The  first  report  of  the  Secretary  on  the  subject  of 
the  public  debt,  of  the  gth  of  January,  1790,  sug 
gests  the  idea  of  "incorporating,  as  a  fundamental 
maxim  in  the  system  of  public  credit  of  the  United 
States,  that  the  creation  of  debt  should  always  be 
accompanied  with  the  means  of  extinguishment;  that 
this  is  the  true  secret  for  rendering  public  credit  im 
mortal,  and  that  it  is  difficult  to  conceive  a  situation 
in  which  there  may  not  be  an  adherence  to  the  maxim"; 
and  it  expresses  "an  unfeigned  solicitude,  that  this 
may  be  attempted  by  the  United  States,  and  that 
they  may  commence  their  measures  for  the  estab 
lishment  of  credit  with  the  observance  of  it."  * 

No  opportunity  has  been  lost  by  the  Secretary,  as 
far  as  he  could  contribute  to  the  event,  to  reduce  this 
principle  to  practice ;  and  important  steps  towards  it 
have  been,  from  time  to  time,  taken  by  the  Legis 
lature. 

But  much  remains  to  be  done  to  give  it  full  effect. 
The  present  state  of  things  encourages  and  invites 
to  the  consummation  of  the  plan.  And  the  Secre 
tary,  about  to  leave  the  office  he  holds,  feels  it  a 
peculiar  duty  to  make  a  final  effort  to  promote  that 
invaluable  end. 

1  It  is  understood  that  the  Parliament  of  Great  Britain  has,  within 
the  last  four  years,  formally  adopted  as  a  standing  rule,  the  principle 
of  incorporating,  with  the  creation  of  debt,  the  means  of  extinguishment. 
How  much  easier  must  the  execution  of  this  important  principle  be 
to  the  United  States,  than  to  a  nation  which,  before  it  began,  had 
so  deeply  mortgaged  its  resources.  Let  the  United  States  never  have 
to  regret,  hereafter,  that  they  postponed  too  long  so  provident  a 
precaution. 


Public  Credit  265 

This  is  the  object  of  the  fifth  proposition,  aided  by 
the  preliminary  provisions  of  the  fourth.  This  pro 
position  aims  at  two  principal  points:  i.  To  con 
stitute  a  fund  sufficient,  in  every  supposable  event, 
for  extinguishing  the  whole  of  the  present  debt  of  the 
United  States,  foreign  and  domestic,  in  a  period  not 
exceeding  thirty  years.  2.  To  fix  its  destination 
unchangeably,  by  not  only  appropriating  it  per 
manently,  under  the  direction  of  commissioners,  and 
vesting  it  in  them  as  property  in  trust,  but  by  mak 
ing  its  faithful  application  a  part  of  the  contract  with 
the  creditors. 

As  to  the  first  point:  If  the  temporary  duties  on 
imports  be  rendered  permanent,  the  annual  reserva 
tion  of  six  millions  of  dollars  postponed,  and  if 
the  additional  appropriations  which  are  proposed  be 
made  to  the  sinking  fund,  its  intended  force  will  not 
only  be  equal  to  the  effect  meant  to  be  produced, 
but  it  may  be  hoped  that  there  is  scarcely  a  casualty 
which  can  reasonably  be  taken  into  calculation,  for 
eign  war  not  excepted,  which  will  occasion  a  defi 
ciency  in  the  fund. 

The  whole  amount  of  the  duties  on  imports  and 
tonnage,  and  upon  domestic  distilled  spirits  and  stills, 
estimated  now  to  amount  to  $6, 079, 418  58,  besides 
the  dividends  on  bank  stock,  and  the  items  which 
now  compose  the  sinking  fund,  will  then  be  appro 
priated,  primarily,  to  the  interest  upon  the  public 
debt,  and  to  the  sinking  fund;  which,  together,  in 
cluding  the  deferred  stock,  will  demand,  perman 
ently,  from  that  revenue,  $4,373,83603 — little 
more  than  two  thirds  of  the  fund  from  which  they 


266  Alexander  Hamilton 

arise.  An  expectation  may  be  indulged,  that  even 
foreign  war,  making  due  allowance  for  what  will 
always  be  practicable  through  neutral  Powers,  would 
not  occasion  a  defalcation  in  the  revenues  greater 
than  the  difference.  This  competency  of  the  fund  is 
an  essential  idea.  The  fulfilment  of  the  object,  as 
far  as  the  uncertainty  of  human  affairs  will  permit, 
ought  to  be  superior  to  casualty. 

The  necessity  of  a  reliance  on  auxiliary  provisions, 
always  precarious  in  those  situations  which  affect  the 
productiveness  of  the  public  revenues,  ought  to  be, 
as  far  as  practicable,  superseded  by  the  ample  nature 
of  the  provision. 

As  to  the  second  point:  The  intent  is  to  secure,  by 
all  the  sanctions  of  which  the  subject  is  susceptible, 
an  inviolable  application  of  the  fund,  according  to 
its  destination.  No  expedients  more  powerful  can 
be  devised  for  this  purpose  than  to  clothe  it  with  the 
character  of  private  property,  and  to  engage  abso 
lutely  the  faith  of  the  government,  by  making  the 
application  of  it  to  the  object,  a  part  of  the  contract 
with  the  creditors. 

But  is  this  necessary? 

Its  necessity  rests  on  these  cogent  reasons:  The 
inviolable  application  of  an  adequate  sinking  fund  is 
the  only  practicable  security  against  an  excessive 
accumulation  of  debt,  and  the  essential  basis  of  a 
permanent  national  credit. 

Experience  has  shown,  in  countries  the  most  at 
tentive  to  the  principles  of  credit,  that  a  simple 
appropriation  of  the  sinking  fund  is  not  a  complete 
barrier  against  its  being  diverted,  when  immediate 


Public  Credit  267 

exigencies  press.  The  causes  which  have  been  stated 
with  another  view,  tempt  the  administrators  of  gov 
ernment  to  lay  hold  of  this  resource  rather  than 
resort  to  new  taxes.  This  indicates  the  utility  of 
endeavoring  to  give,  by  additional  sanctions,  in 
violability  to  the  fund. 

But,  will  those  proposed  answer  the  end? 

They  are  the  most  efficacious  that  can  be  imag 
ined,  and  they  are  likely  to  be  entirely  efficacious. 
They  cannot  be  disregarded,  without,  by  breach 
of  faith  and  contract,  destroying  credit;  and  at  a 
juncture,  too,  when  it  is  most  indispensable.  The 
emergencies  which  induce  a  diversion  of  the  fund 
are  those  in  which  loans,  and,  consequently,  credit, 
are  most  needed. 

But  will  it  be  safe  to  put  the  funds  so  entirely  out 
of  the  command  of  the  government  ?  May  there  not 
be  situations  in  which  the  command  of  it  may  be 
requisite  to  the  safety  of  the  State? 

This  is  not  conceivable.  The  amount  of  the  sinking 
fund  will,  in  the  situations  which  create  extraord 
inary  demands  for  money,  be  always  inconsider 
able,  compared  even  with  a  single  year's  expenditure. 
The  current  revenues  of  a  nation  do  not,  in  such 
cases,  suffice.  Plunder  or  credit  must  supply  the 
deficiency.  The  first  presupposes  a  subversion  of  all 
social  order.  The  second  will  find  its  best  support 
and  greatest  efficacy  in  adhering  steadily  to  the 
principles  of  such  a  fund.  An  annuity  of  seven  dol 
lars  will  pay  the  interest  upon,  and  discharge  a  capi 
tal  of,  one  hundred  dollars,  bearing  six  per  cent, 
interest,  in  thirty- three  and  a  third  years,  nearly. 


268  Alexander  Hamilton 

The  situation  of  a  country  must  be  not  a  little 
exhausted,  if  it  cannot  create  yearly,  by  new  re 
venues,  during  the  continuance  of  a  foreign  war,  an 
annuity  on  the  above  scale  sufficient  to  fund  the 
loans  of  which  it  may  stand  in  need.  Ten  millions  of 
dollars  will,  with  order  and  economy,  maintain  in 
this  country  an  army  of  fifty  thousand  men  for  a 
year.  Viewing  our  geographical  position,  is  there  a 
prospect  of  any  war  expensive  beyond  this  ratio? 
If  not,  an  annuity  of  seven  hundred  thousand  dol 
lars,  created  each  year  of  the  war,  would  suffice.  But 
it  would  be  wise,  in  such  an  event,  to  carry  taxation, 
in  the  first  instance,  to  the  full  extent  of  the  ability 
of  the  state,  which  would  proportionably  contract 
the  necessity  for  borrowing,  and,  consequently,  the 
extent  of  the  annuities  necessary  for  loans. 

If  a  nation  can  find  embarrassment  in  creating  the 
revenues  requisite  on  this  scale,  it  must  arise  from 
her  having  reached  a  stage  when,  from  the  neglect 
of  the  principle  now  inculcated,  the  mass  of  her 
debt  has  become  so  enormous  as  to  strain  her  facult 
ies  in  order  to  make  a  provision  for  it. 

The  United  States  are  in  a  situation  altogether 
different.  An  inspection  of  the  list  of  their  revenues 
discovers  that  they  have  a  large  field  of  resource  un 
explored.  Their  youth,  and  large  tracts  of  unsettled 
lands,  and  land  in  the  infancy  of  improvement,  assure 
them  a  great  and  rapid  increase  of  means.  Even 
their  actual  revenues,  without  additions,  must,  with 
the  progress  of  the  country,  considerably  increase. 
And,  though  war  may  interrupt,  the  temporary  in 
terruption  being  removed  by  the  restoration  of  peace, 


Public  Credit  269 

their  increasing  productiveness,  suspended  for  a 
time,  must  resume  its  vigor  and  growth.  In  a  given 
number  of  years  a  considerable  augmentation  is 
certain. 

The  government  of  this  country  may,  therefore, 
adopt,  fearless  of  future  embarrassment,  a  principle 
which,  being  adopted,  will  ultimately  furnish  re 
sources  for  future  exigencies,  without  an  increase  of 
burthen  to  the  community. 

To  explain  this  last  idea:  It  will  readily  be  per 
ceived  that  the  funds  pledged  for  paying  the  interest 
and  sinking  the  principal  of  a  portion  of  the  debt 
existing  or  created  at  a  particular  time,  will,  within 
a  certain  period,  extinguish  that  portion  of  debt. 

They  will  then  be  liberated,  and  will  be  ready  for 
any  future  use,  either  to  defray  current  expenditures, 
or  be  the  basis  of  new  loans,  as  circumstances  may 
dictate.  And,  after  a  course  of  time,  it  is  a  reason 
able  presumption,  that  the  funds,  so  successively  lib 
erated,  will  be  adequate  to  new  exigencies,  as  they 
occur. 

Moreover,  the  last  clause  of  the  proposition  au 
thorizes  the  deriving  aid  from  the  sinking  fund  for 
new  loans,  whenever  the  state  of  the  fund  admits  of 
it,  consistently  with  the  accomplishment  of  its  pur 
poses — that  is,  when  it  is  sufficient — ist,  to  make 
good  the  payments  on  account  of  the  principal  of  the 
debt  as  they  accrue;  2d,  to  purchase  in  the  market 
all  that  part  of  the  public  debts  of  which  there  is  no 
stipulation  of  payment  by  instalments  (as  the  three 
per  cent,  stock)  within  a  period  of  thirty  years. 

This,  while  it  secures  the  extinction  of  the  exist- 


270  Alexander  Hamilton 

ing  debt  within  a  reasonable  term,  by  preventing  too 
great  a  proportion  of  the  public  revenue  from  being 
tied  up  by  the  sinking  fund,  gives  due  weight  to  the 
consideration  of  providing  for  future  emergencies. 

The  same  consideration  has  governed  in  proposing 
(instead  of  the  appropriation  of  a  definite  sum  out  of 
the  revenue  from  imports  and  tonnage,  which,  in  cer 
tain  years,  would  be  greater  than  will  be  permanently 
necessary)  that  the  sum  to  be  applied  out  of  that 
revenue  shall  be  so  much  from  year  to  year  as,  with 
the  other  items  of  the  sinking  fund,  will  suffice  for 
the  object.  It  has  likewise  influenced  in  postpon 
ing  the  redemption  of  that  stock  which  stands  to  the 
credit  of  certain  States,  in  consequence  of  the  report 
of  the  commissioners  for  settlement  of  accounts. 

Every  system  of  public  credit  must  assume  it  as  a 
fundamental  principle,  that  the  resources  of  the 
country  are  equal  to  its  probable  exigencies,  and  that 
it  will  possess  ability  to  pay  the  debts  which  it  con 
tracts.  If  this  be  so,  there  is  no  cause  to  hesitate 
about  the  inviolable  appropriation  of  funds  to  the 
extinction  of  an  existing  debt  within  no  less  a  term 
than  thirty  years. 

Indeed,  as  before  intimated,  it  cannot  be  doubted 
that  the  resources  of  a  credit,  built  upon  a  founda 
tion  so  solid  as  that  which  is  recommended,  will  more 
than  replace,  even  in  the  earliest  stages  of  our  af 
fairs,  the  use  of  the  additional  funds  withdrawn 
from  the  command  of  the  government  to  effect  it, 
and,  in  the  eventual  operation,  will  give  a  more 
abundant  command  of  funds  than  it  can  otherwise 
have.  The  successive  liberation  of  the  revenues,  sue- 


Public  Credit  271 

cessively  pledged,  after  accomplishing  their  object, 
will  afford  resources  that  may  almost  be  said  to  be 
inexhaustible. 

It  should  be  recollected,  too,  that  the  public  ar 
rangements  may,  under  a  great  pressure,  anticipate 
the  approaching  period  of  such  liberation,  by  inter 
mediate  temporary  loans,  to  be  replaced  by  those 
funds  when  they  are  free. 

This  proposition  exemplifies,  as  to  the  past,  the 
nature  of  the  maxim  which  has  been  supposed  cap 
able  of  giving  immortality  to  credit,  namely:  that, 
with  the  creation  of  debt,  should  be  incorporated  the 
means  of  extinguishment ;  which  means  are  twofold : 
i.  The  establishing,  at  the  time  of  contracting  a  debt, 
funds  for  the  reimbursement  of  the  principal,  as  well  as 
for  the  payment  of  interest  within  a  determinate 
period.  2.  The  making  it  a  part  of  the  contract,  that 
the  fund,  so  established,  shall  be  inviolably  applied  to 
the  object. 

It  is  believed  that  it  would  be  happy  for  the 
United  States,  if  Congress  would  adopt  this  principle 
as  a  rule  in  all  future  loans — never  to  be  departed 
from ;  and  a  good  evidence  of  this  determination  will 
be,  to  apply  it  to  the  past. 

This  would  be,  at  the  same  time,  an  antidote 
against  what  may  be  pronounced  the  most  plausible 
objections  to  the  system  of  funding  public  debts; 
which  are,  that,  by  facilitating  the  means  of  sup 
porting  expense,  they  encourage  to  enterprises  which 
produce  it ;  and,  by  furnishing  in  credit  a  substitute 
for  revenue,  likely  to  be  too  freely  used  to  avoid  the 
odium  of  laying  new  taxes,  they  occasion  a  tendency 


272  Alexander  Hamilton 

to  run  in  debt.  Though  these  objections  to  funding 
systems,  which  give  the  greatest  possible  energy  to 
public  credit,  are  a  great  source  of  national  security, 
strength,  and  prosperity,  are  very  similar  to  those 
which  speculative  men  urge  against  national  and  in 
dividual  opulence,  drawn  from  its  abuses ;  and  though, 
perhaps,  upon  a  careful  analysis  of  facts,  they  would 
be  found  to  have  much  less  support  in  them  than  is 
imagined,  attributing  to  those  systems  effects  which 
are  to  be  ascribed,  more  truly,  to  the  passions  of 
men,  and  perhaps  to  the  genius  of  particular  govern 
ments;  yet,  as  they  are  not  wholly  unfounded,  it  is 
desirable  to  guard,  as  far  as  possible,  against  the 
dangers  which  they  suppose,  without  renouncing 
the  advantages  which  these  systems  undoubtedly 
afford. 

It  will  readily  be  seen,  that  the  maxim  of  making 
concurrent  provision  for  the  principal  as  well  as  in 
terest,  in  the  act  of  contracting  debt,  if  by  precedent 
and  habit  it  can  be  rendered  a  rule  of  administra 
tion,  by  implicating  a  greater  portion  of  the  revenue 
in  every  such  operation  than  would  be  requisite  for 
a  mere  provision  for  interest,  will  control  proportion- 
ably  the  disposition  to  defer  the  burthen  to  futurity, 
and  create  a  greater  necessity  for  circumspection  in 
incurring  expense. 

It  is,  probably,  the  true  expedient  for  uniting  a 
due  regard  to  the  present  accommodation  of  the 
community,  with  a  due  care  not  to  overburthen 
posterity — the  full  energy  of  public  credit,  with  a 
salutary  restraint  upon  the  abuses  of  it. 

To  this  explanation  of  the  general  principles  of  the 


Public  Credit  273 

fifth  proposition,  it  may  be  proper  to  add  some  brief 
notes  on  particular  parts  of  it. 

It  is  proposed  that  the  redemption  of  the  present 
six  per  cent,  stock  shall  commence  on  the  ist  of  Janu 
ary,  1796.  This  time  of  commencement  is  recom 
mended  by  several  reasons :  i .  It  ought  to  be  such  as 
to  admit  of  sufficient  notice  to  distant  creditors. 
2.  It  will  favor  order,  to  date  the  commencement  of 
every  new  pecuniary  operation,  where  there  is  an 
option,  and  no  particular  reason  to  the  contrary, 
with  the  commencement  of  the  natural  year.  3.  The 
moment  of  payment  presupposes  that  the  annuity  to 
be  paid  has  actually  accrued,  which  will  not  be  the 
case  till  the  end  of  the  present  year.  4.  The  small 
delay,  by  not  forcing  the  means,  will  facilitate  the 
future  execution. 

It  is  a  part  of  the  plan  to  make  provision  for  reim 
bursing  the  remaining  instalments  of  the  two-million 
loan,  had  of  the  Bank  of  the  United  States,  pursuant 
to  the  act  of  incorporation.  The  preceding  instal 
ments  have  been  reimbursed  out  of  the  proceeds  of 
foreign  loans.  This  resource  cannot,  in  future,  be 
relied  upon ;  and  for  such  a  purpose  it  is  not  as  eli 
gible  as  a  domestic  one,  though  circumstances  have 
hitherto  dictated  a  recurrence  to  it.  By  making  the 
dividends  on  the  stock  auxiliary  for  this  purpose  to 
the  revenue  from  taxes,  the  object  is  effected  with 
little  more  than  half  the  sum  from  that  revenue; 
and,  in  the  end,  a  fund  is  formed  from  the  dividends 
which,  with  a  small  addition,  suffices  for  the  re 
demption  of  the  deferred  stock.  As  these  instal 
ments  are  yearly  falling  due,  and  must  be  paid  as  they 

VOL.  III.— 18. 


274  Alexander  Hamilton 

accrue,  it  is  essential  that  a  provision  for  them  be 
contemplated  in  the  general  arrangement  requisite  to 
the  completion  of  our  system  of  credit.  There  is, 
perhaps,  no  easy  alternative  to  what  is  proposed, 
except  the  sale  of  the  stock.  But,  waiving  other 
weighty  considerations  against  such  a  measure,  it  is, 
in  the  view  of  a  true  economy,  liable  to  the  most 
solid  objections. 

It  is  morally  certain  that  the  dividends  on  the 
stock  will  increase,  and  the  value  of  the  capital,  from 
this  and  collateral  causes,  more  than  proportionably. 
There  is  no  momentary  urgency  to  induce  the  relin- 
quishment  of  this  future  advantage.  To  sell  at 
present  would  be  to  abandon  the  difference  without 
necessity.  It  cannot  be  expedient  in  a  government 
to  part  with  a  capital  which,  at  the  time,  produces 
as  great  or  a  greater  revenue  than  can  be  realized 
from  the  proceeds  of  a  sale,  however  invested; 
and  which  has  an  inherent  tendency  to  future 
augmentation.  The  measure,  too,  would  be  to 
renounce,  or  lessen,  a  most  convenient  resource 
for  forming  the  redeeming  fund  of  the  deferred 
stock. 

It  is  proposed  to  carry  the  proceeds  of  the  sales  of 
the  Western  lands  to  the  sinking  fund.  This  is  to 
execute  the  intention  of  the  funding  act,  which  has 
not  organized  the  mode  of  application;  and  it  has 
the  advantage  of  combining  in  one  system  all  the 
provisions  for  extinguishing  the  debt. 

It  is  proposed  that  all  surpluses  of  revenue  shall, 
at  a  certain  time,  be  carried  to  the  use  of  the  sinking 
fund.  This  is  to  extend  and  give  effect  to  a  principle 


Public  Credit  275 

which  has  already  received  the  legislative  sanction. 
It  was  necessary  to  fix  a  time  when  the  appropria 
tion  of  the  surplus  should  become  absolute,  and  that 
this  should  be  consistent  with  a  due  opportunity  to 
provide  for  the  exigencies  of  the  public  service. 
Both  these  considerations  have  been  consulted. 
This  measure  has,  besides,  reference  to  a  more 
speedy  redemption  of  the  debt  than  it  appears 
prudent  to  attempt  by  an  absolute  appropriation 
of  more  extensive  funds.  And  the  legislators  of 
to-day  would  be  entitled  to  the  lasting  gratitude 
of  their  country,  if  they  would  extend  this  auxiliary 
resource  by  all  the  means  which  are  consistent  with 
a  due  regard  to  the  present  accommodation  of  their 
constituents. 

It  is  proposed  to  authorize  the  commissioners  of 
the  sinking  fund  to  provide,  by  new  loans,  for  the 
reimbursement  of  the  instalments  which,  from  time 
to  time,  accrue.  This  is  on  the  ground  that  it  is 
essential  to  the  perfection  of  the  system  of  redemp 
tion,  that  all  the  means  of  ultimate  execution  should 
be  organized  in  it,  and  that  there  should  be  no  need 
of  future  provisions. 

The  last  clause  of  the  proposition  excepts  from  the 
operation  of  that  clause  the  interest  on  the  six  per 
cent,  stock.  This  is  because  that  interest  is  de 
stined  to  form  the  accumulations  for  paying  the  suc 
cessive  instalments  of  the  principal  of  that  stock, 
which  increase  each  year  in  a  ratio  to  the  interest 
liberated  by  each  payment. 

The  statement  E  exhibits  the  course  of  the  sinking 
fund,  as  proposed  to  be  established. 


276  Alexander  Hamilton 

Remarks  on  the  Sixth  Proposition 

This  will  be  a  useful  and  important  provision.  It 
has  reference  to  a  circumstance  repeatedly  ad 
verted  to — the  long  credits  given  upon  the  principal 
branches  of  revenue;  from  which  it  happens,  that, 
though  the  fund  itself,  or  the  product  of  the  revenue, 
is  more  than  adequate  to  an  appropriation,  yet  the 
receipts  upon  it  come  too  slowly  into  the  treasury  to 
answer  the  end,  without  anticipation  by  temporary 
loans.  Its  propriety  depends  on  the  principle  sug 
gested  under  the  last  head,  of  having  all  the  means  of 
complete  execution  organized  in  the  system  of  public 
credit. 

Remarks  on  the  Seventh  Proposition 

It  is  a  good  rule  of  caution,  that  no  more  of  the 
public  revenues  should  be  rendered  permanent,  than 
is  necessary  to  give  moral  certainty  to  the  provisions 
which  may  be  regarded  as  the  pillars  of  public  credit. 
This  idea  will,  it  is  believed,  be  satisfied,  by  giving 
permanency  to  the  now  temporary  duties  on  im 
ports.  Accordingly,  it  is  only  proposed  to  extend 
the  duties,  mentioned  in  this  proposition  to  the  year 
1800,  and  thence,  to  the  end  of  the  next  ensuing 
session  of  Congress;  which  is  on  the  ground  that 
they  ought  to  be  commensurate  in  duration  with  the 
objects  which  they  are  to  accomplish,  and  no  more. 

It  has  been  already  noticed,  that  they  are  at 
present  chargeable,  together  with  the  temporary 
duties  on  imports,  laid  in  the  last  session,  with  an 
appropriation  of  1,292,137  dollars  and  thirty-eight 


Public  Credit  277 

cents,  and  with  the  interest  of  one  million  of  dollars, 
authorized  to  be  borrowed  with  a  view  to  foreign  in 
tercourse;  having  a  special  eye  to  an  object  very 
interesting  to  the  commerce  and  feelings  of  the 
United  States. 

This  business  wants  a  further  arrangement ;  stand 
ing,  at  present,  upon  a  vague  and  inefficient  footing. 
The  reimbursement  of  the  loan  is  not  adequately  pro 
vided  for,  neither  is  the  interest,  this  being  predicated 
on  funds  which,  in  their  present  form,  would  prob 
ably  expire  after  a  product  of  two  years. 

According  to  the  fifth  proposition,  the  temporary 
duties  on  imports,  after  the  above-mentioned  ap 
propriation  of  1,292,137  dollars  and  thirty-eight 
cents  shall  have  been  satisfied,  will  become  perman 
ently  charged  with  the  interests  on  the  public  debt, 
the  sinking  fund,  and  the  annual  reservation  of 
$600,000,  for  the  support  of  government. 

If  the  duties  mentioned  in  the  sixth  proposition 
are  continued  till  the  first  of  January,  1800,  and  the 
reimbursement  of  the  principal  of  the  loan,  as  well 
as  the  interest,  is  referred  to  them,  two  good  pur 
poses  will  be  answered:  the  obtaining  the  loan  will 
be  facilitated,  and  its  complete  reimbursement  will 
be  effected  within  the  term  allotted,  without  an  aug 
mentation  of  the  permanent  debt  of  the  country.  This 
makes  allowance  for  fulfilling  the  appropriation  for 
the  current  service  already  charged  upon  this  fund. 

It  is  presumed  to  be  a  conclusive  reason  in  favor 
of  the  proposition,  that  it  aims  at  preventing  an  in 
crease  of  permanent  debt.  If  services  of  this  kind, 
when  the  United  States  are  at  peace  (at  least  with 


278  Alexander  Hamilton 

civilized  Powers),  are  made  causes  of  permanent 
loans,  the  progress  of  new  debt  will  easily  exceed  the 
extinction  of  old. 

It  appears  desirable  that  there  should  be  a  steady 
effort,  as  a  rule  of  administration,  not  to  increase  the 
permanent  debt  of  the  country  by  permanent  loans, 
except  when  it  is  inevitable,  by  the  existence  of  a 
war  with  some  European  Power. 

The  comparative  view  of  revenue  and  expenditure 
(statement  F)  establishes,  satisfactorily,  that  these 
duties  cannot  be  dispensed  with,  unless  there  be  a 
substitute,  if  the  redemption  of  the  public  debt  is  to 
be  seriously  entered  upon;  and  it  is  believed  that 
there  cannot  be  devised  objects  of  revenue  more 
proper  in  themselves,  nor  more  generally  acceptable 
to  the  people.  Whatever  interested  parties  may 
allege,  it  seems  self-evident  that  there  can  hardly  be 
a  reasonable  question,  except  as  to  the  best  mode  of 
collection.  The  objection,  that  part  of  them  falls  on 
manufactures,  has  no  weight.  The  manufactures  on 
which  they  fall  are  complete  luxuries  and  completely 
established;  consequently,  fit  objects  of  revenue. 
The  increased  duties  on  the  rival  foreign  articles  are 
a  full  protection  to  the  manufacture.  Whatever 
may  be  the  appearances  in  the  infancy  of  the  tax, 
it  is  certain,  in  principle,  that  it  will  finally  fall  on 
the  consumer,  as  generally  as  duties  on  imported 
commodities. 

Remarks  on  the  Eighth  Proposition 

This  is  to  terminate  an  embarrassment  which  has 
been  experienced.  Appropriations  are  frequently 


Public  Credit  279 

made  for  objects,  the  extent  of  which  is  not  pre 
cisely  known,  or  in  a  degree  casual.  To  leave  them 
indefinite,  as  to  time,  is  sometimes  to  tie  up,  un 
necessarily,  a  portion  of  the  public  funds,  which 
may,  ultimately,  not  be  wanted  at  all  for  the  purpose 
of  the  original  appropriation. 

It  will  do  away  this  inconvenience,  and  promote 
perspicuity  in  the  treasury  accounts  of  appropria 
tions,  if  an  ultimate  period  is  fixed  when  each  ap 
propriation  shall  be  deemed  to  have  ceased.  Should 
further  appropriations  appear  necessary  for  the  same 
objects,  new  estimates  can  be  presented,  and  new 
appropriations  made. 

The  designating  an  account  with  a  denomination 
known  in  the  laws,  to  which  the  surpluses  are  to  be 
carried,  will  facilitate  future  legislative  dispositions  of 
the  resulting  fund.  It  is,  however,  essential  to  the 
system  of  public  credit,  that  this  should  be  with  the 
exceptions  contained  in  the  proposition. 

Remarks  on  the  Ninth  Proposition 

This  proposition  is  calculated  to  give  simplicity  to 
the  public  accounts  of  stock  and  revenue,  which  will 
conduce  to  correctness,  dispatch,  and  economy.  As 
the  revenues  are  manifestly  more  than  adequate  to 
the  claims  of  all  the  creditors,  they,  none  of  them, 
have  any  interest  in  the  distinctions  which  now 
exist,  and  which  grew  out  of  the  course  of  the  busi 
ness;  and  the  rights  of  none  of  them  will  be  affected, 
because  all  who  choose  may  continue  on  their  former 
ground,  by  signifying  their  dissent  to  the  present  plan. 
It  is, however,  presumed,  there  will  be  no  such  dissent. 


280  Alexander  Hamilton 

Remarks  on  the  Tenth  Proposition 

It  is  important  to  the  fiscal  calculations,  to  ascer 
tain,  positively,  the  extent  of  every  portion  of  the 
public  debt.  At  present,  the  amount  of  these  sev 
eral  items  of  it  is  deduced  from  accounts  of  the  late 
war,  of  various  officers  and  offices  in  some  instances, 
conducted  with  little  order.  There  is  not,  therefore, 
sufficient  certainty;  indeed,  it  is  probable,  from  the 
length  of  time  that  has  elapsed  without  their  appear 
ing,  that  the  computed  amount  exceeds  the  real. 

Besides,  they  are,  from  their  nature,  subject  to 
forgeries  and  counterfeits;  which  implies  a  danger 
of  loss  to  the  public,  till  their  circulation  is  finally 
terminated.  The  proposition,  accordingly,  besides 
the  obtaining  of  better  information,  aims  at  obviat 
ing  this  danger. 

Allowing  sufficient  time  for  bringing  them  in  to  be 
exchanged  for  certificates  of  equivalent  tenor,  while 
it  is  a  measure  tending  to  public  information  and 
security,  it  can  be  liable  to  no  reasonable  objection 
on  the  part  of  the  creditors. 

The  Secretary  of  the  Treasury  has  reserved  for  the 
conclusion  of  this  report,  a  proposition  which  appears 
to  him  of  great  importance  to  the  public  credit,  and 
which,  after  some  preliminary  observations,  will  be 
offered  to  consideration.  It  relates  to  the  right  of 
taxing  the  public  funds,  and  to  that  of  sequestering 
them  in  time  of  war. 

A  proposition,  on  either  of  those  points  would  have 
been  deemed  superfluous,  had  there  never  been  dis 
cussions  asserting  a  right  to  do  the  one  and  the 


Public  Credit  281 

other,  and  even  the  expediency  of  exercising  that 
right.  The  negative  of  both  the  pretensions,  from 
the  habit  of  regarding  it  as  incapable  of  being  dis 
puted,  had  acquired,  in  the  mind  of  the  Secretary, 
so  much  the  force  of  an  axiom  as  to  have  precluded 
even  the  mention  of  the  subject  in  the  plan  which  he 
originally  submitted  for  funding  the  public  debt. 
He  should,  otherwise,  have  thought  it  an  indispens 
able  duty  to  suggest,  as  a  matter  of  primary  conse 
quence  to  the  system  of  credit  contemplated  in  the 
plan,  the  express  renunciation  of  those  pretensions; 
for  they  are  (as  he  believes)  not  only  unwarranted  by 
principle  or  usage,  but  subversive  of  the  sound 
maxims  of  public  credit.  A  persuasion  that  this 
would  always  be  a  truth  granted  in  the  councils  of  the 
United  States,  is  his  apology  for  the  omission. 

Even  now  he  should  think  it  useless  to  depart 
from  his  silence  on  the  point,  had  not  the  discussions 
alluded  to  created  some  alarm  in  places  where  all 
the  circumstances  are  not  well  understood,  which  it 
is  the  interest  of  the  country  to  dispel.  The  confid 
ence  justly  to  be  reposed  in  the  collective  wisdom  of 
this  government,  forbids  the  supposition,  by  one 
acquainted  with  its  constitution,  that  the  security  of 
the  creditor  can  need,  in  this  particular,  a  further 
sanction.  It  is  presumed  to  be  impossible,  that  any 
final  act  can  ever  give  so  deep  a  wound  to  the  na 
tional  interest  and  character,  as  to  derogate  from  a 
principle  which  may  be  placed  among  the  most 
sacred  in  the  administration  of  a  government. 

Is  there  a  right  in  a  government  to  tax  its  own 
funds  ? 


282  Alexander  Hamilton 

The  pretence  of  this  right  is  deduced  from  the 
general  right  of  the  legislative  power  to  make  all 
the  property  of  the  state  contributory  to  its  own 
exigencies. 

But  this  right  is  obviously  liable  to  be  restricted 
by  the  engagements  of  the  government;  it  cannot  be 
justly  exercised  in  contravention  of  them;  they 
must  form  an  exception.  It  will  not  be  denied,  that 
the  general  right  in  question  could,  and  would,  be 
abridged,  by  an  express  promise  not  to  tax  the 
funds.  This  promise,  indeed,  has  not  been  given  in 
terms,  but  it  has  been  given  in  substance.  When  an 
individual  lends  money  to  the  state,  the  state  stipul 
ates  to  repay  him  the  principal  lent,  with  a  certain 
interest,  or  to  pay  a  certain  interest,  indefinitely,  till 
the  principal  is  reimbursed ;  or  it  stipulates  some 
thing  equivalent,  in  another  form.  In  our  case,  the 
stipulation  is  in  the  second  form. 

To  tax  the  funds,  is  manifestly  either  to  take,  or 
to  keep  back,  a  portion  of  the  principal  or  interest 
stipulated  to  be  paid. 

To  do  this,  on  whatever  pretext,  is  not  to  do  what 
is  expressly  promised;  it  is  not  to  pay  that  precise 
principal,  or  that  precise  interest,  which  has  been 
engaged  to  be  paid;  it  is,  therefore,  to  violate  the 
promise  given  to  the  lender. 

But  is  not  the  stipulation  to  the  lender,  a  tacit 
reservation  of  the  general  right  of  the  Legislature  to 
raise  contributions  on  the  property  of  the  state  ? 

This  cannot  be  supposed — because  it  involves  two 
contradictory  things ;  an  obligation  to  do,  and  a  right 
not  to  do.  An  obligation  to  pay  a  certain  sum,  and 


Public  Credit  283 

a  right  to  retain  it  in  the  shape  of  a  tax.  It  is  against 
the  rules,  both  of  law  and  reason,  to  admit,  by  im 
plication,  in  the  construction  of  a  contract,  a  princi 
pal  which  goes  in  destruction  of  it. 

The  government,  by  such  a  construction,  would  be 
made  to  say  to  the  lender :  "I  want  a  sum  of  money, 
for  a  national  purpose,  which  all  the  citizens  ought  to 
contribute  proportionably,  but  it  will  be  more  con 
venient  to  them,  and  to  me,  to  borrow  the  money  of 
you.  If  you  will  lend  it,  I  promise  you  faithfully,  to 
allow  you  a  certain  rate  of  interest,  while  I  keep  the 
money,  and  to  reimburse  the  principal  within  a  deter 
minate  period,  except  so  much  of  the  one  and  the  other 
as  I  may  think  fit  to  withhold,  in  the  shape  of  a  tax. ' ' 

Is  such  a  construction  either  natural  or  rational? 
Does  it  not,  in  fact,  nullify  the  promise  by  the  re 
servation  of  a  right  not  to  perform  it? 

Is  it  to  be  presumed,  without  being  expressed,  that 
such  can  be  the  understanding  of  a  lender,  when  he 
parts  with  his  money  to  a  government  ? 

The  contrary  is  so  much  the  more  presumable  that 
nothing  short  of  an  express  reservation  can  support 
the  pretension  to  tax  the  funds. 

It  may  be  replied,  that  the  creditor  might  be  will 
ing  to  rely  upon  the  equity  of  the  government,  not 
to  abuse  its  right,  by  exacting  from  him  excessive 
contributions. 

This,  if  true,  does  not  obviate  the  difficulty  of  sup 
posing  the  coexistence  of  an  obligation  and  a  right, 
destructive  the  one  of  the  other,  in  interpreting  the 
sense  of  a  contract,  when  nothing  of  the  kind  is  said. 

It  is  possible  that  a  creditor  might  be  willing  so  to 


284  Alexander  Hamilton 

contract;  yet  it  is  still  necessary,  in  order  to  deter 
mine  that  he  has  done  it,  to  find  some  provisions  or 
expressions  in  the  contract,  indicating  the  intention 
to  render  what  is  stipulated  compatible  with  what  is 
reserved.  But  it  is  not  probable  that  an  individual 
would  be  willing  to  lend  upon  such  terms.  He  would 
justly  apprehend,  that,  in  great  emergencies,  a  right 
having  no  limit  but  the  opinion  of  the  party  pos 
sessed  of  the  power,  would  be  abused,  that  the 
convenience  of  laying  hold  of  a  fund  already  pre 
pared  and  at  hand,  supported  by  a  claim  of  right, 
would  be  a  temptation  to  abuse,  not  easy  to  be  re 
sisted.  However  well  disposed  to  contribute,  in 
common  with  his  fellow-citizens,  on  all  the  ordinary 
objects  of  property  or  income,  he  would  be  unwilling 
to  subject  himself  to  a  special  burthen,  in  the  pe 
culiar  character  of  creditor  of  the  state.  He  would 
prefer  to  employ  his  money  in  other  ways;  even  to 
lend  it  to  private  persons,  where  it  might  be  more 
likely  to  escape  the  hand  of  the  fiscal  power. 

Let  the  question  be  tried  by  another  analysis. 

Public  debt  can  scarcely,  in  legal  phrase,  be  defined 
either  as  property  in  possession  or  in  action.  It  is 
evidently  not  the  first,  till  it  is  reduced  to  possession 
by  payment.  To  be  the  second,  would  suppose  a 
legal  power  to  compel  payment  by  suit.  Does  such  a 
power  exist?  The  true  definition  of  public  debt  is 
a  property  subsisting  in  the  faith  of  the  government. 
Its  essence  is  promise.  Its  definite  value  depends 
upon  the  reliance  that  the  promise  will  be  definitely 
fulfilled.  Can  the  government  rightfully  tax  its 
promise?  Can  it  put  its  faith  under  contribution? 


Public  Credit  285 

Where  or  what  is  the  value  of  the  debt,  if  such  a 
right  exists? 

Suppose  the  government  to  contract  with  an  in 
dividual  to  convey  to  him  a  hundred  acres  of  land, 
upon  the  condition  of  paying  a  hundred  dollars. 
When  he  came  to  pay  the  hundred  dollars  and  de 
mand  his  title,  could  the  government  require  of  him 
to  pay  fifty  more  as  a  tax  upon  the  land,  before  it 
would  consent  to  give  him  the  title  ?  Who  would  not 
pronounce  this  to  be  a  breach  of  contract — a  fraud— 
which  nothing  could  disguise? 

This  case  is  parallel  with  that  under  examination, 
with  circumstances  that  fortify  the  right  of  the 
lending  creditor. 

The  government  agrees  with  him  that,  for  one 
hundred  dollars,  which  he  delivers  to  the  government, 
it  will  deliver  to  him,  at  the  end  of  each  year,  six 
dollars.  Here  the  six  dollars  to  be  delivered  answer 
to  the  land  to  be  conveyed,  with  this  stronger  ground 
of  right,  that  the  consideration  for  them  has  actu 
ally  been  given  and  received.  Yet,  when  the  cred 
itor  comes  to  demand  his  six  dollars,  he  is  told  that 
he  cannot  have  them,  except  with  the  reservation  of 
one  dollar  as  a  tax  upon  the  six,  or  that  he  cannot 
have  them,  except  upon  the  condition  of  returning 
one  dollar  as  that  tax.  What  is  this  but  to  say  that 
his  title  to  the  money  in  this  case,  as  to  the  land  in 
the  other,  must  depend  upon  his  paying  or  allowing 
a  further  consideration  for  it,  not  contemplated  in  the 
contract?  Can  there  be  a  doubt  that  this,  also, 
would  be  a  breach  of  contract — a  fraud? 

The  true  rule  of  every  case  of  property,  founded  on 


Alexander  Hamilton 

contract  with  the  government,  is  this:  It  must  first 
be  reduced  into  possession,  and  then  it  will  become 
subject,  in  common  with  other  similar  property,  to 
the  right  of  the  government  to  raise  contributions 
upon  it.  It  may  be  said  that  the  government  may 
fulfil  this  principle  by  paying  the  interest  with  one 
hand,  and  taking  back  the  amount  of  the  tax  with 
the  other.  But  to  this  the  answer  is  that,  to  comply 
truly  with  the  rule,  the  tax  must  be  upon  all  the 
money  of  the  community,  not  upon  the  particular 
portion  of  it  which  is  paid  to  the  public  creditors; 
and  it  ought,  besides,  to  be  so  regulated  as  not  to 
include  a  lien  of  the  tax  upon  the  fund.  The  credi 
tor  should  be  no  otherwise  acted  upon,  than  as  every 
other  possessor  of  money;  and,  consequently,  the 
money  he  receives  from  the  public  can  then  only  be 
a  fit  subject  of  taxation  when  it  is  entirely  separated 
and  thrown,  undistinguished,  into  the  common  mass. 
A  different  practice  would  amount  to  an  evasion  of 
the  principle  contended  for,  and  to  oppression.  A 
rent,  or  annuity,  liable  before  it  passes,  or  in  the  act 
of  passing,  or  at  the  moment  of  passing,  from  one 
proprietor  to  another,  to  a  deduction,  or  drawback, 
at  the  pleasure  of  the  party  from  whom  it  is  to  pass, 
is  an  imaginary  thing,  destitute  both  of  shape  and 
substance. 

When  a  government  enters  into  contract  with  an 
individual,  it  deposes  as  to  the  matter  of  the  con 
tract  its  constitutional  authority,  and  exchanges  the 
character  of  legislator  for  that  of  a  moral  agent,  with 
the  same  rights  and  obligations  as  an  individual. 
Its  promises  may  be  justly  considered  as  excepted 


Public  Credit  287 

out  of  its  power  to  legislate,  unless  in  aid  of  them.  It 
is,  in  theory,  impossible  to  reconcile  the  two  ideas  of 
a  promise  which  obliges  with  a  power  to  make  a  law 
which  can  vary  the  effect  of  it.  This  is  the  great  prin 
ciple  that  governs  the  question,  and  abridges  the 
general  right  of  the  government  to  lay  taxes,  ex 
cepting  out  of  it  a  species  of  property  which  subsists 
only  in  its  promise. 

There  are  persons  who,  admitting  the  general  rule, 
conceive  a  distinction  to  exist  between  a  tax  upon 
the  funds,  which  must  be  paid  at  all  events,  and  a 
tax  upon  alienations  of  them,  which  will  only  be  paid 
when  they  are  transferred  from  one  to  another.  The 
latter  they  think  justifiable,  because  it  is  in  the 
option  of  the  creditor  to  avoid  the  tax  by  avoiding 
the  alienation.  But  the  difference  between  the  two 
cases  is  only  a  difference  in  the  degree  of  violation. 

The  stock,  in  its  creation,  is  made  transferable. 
This  quality  constitutes  a  material  part  of  its  value, 
and  the  existence  of  it  is  a  part  of  the  contract  with 
the  government,  which  has  undertaken,  itself,  to 
conduct  the  operation  of  transferring  by  its  own 
officers,  and  consequently  at  its  own  expense.  It  is 
as  completely  a  breach  of  contract  to  derogate  from 
this  quality,  in  diminution  of  the  value  of  stock,  by 
encumbering  the  transfer  with  a  charge  or  tax,  as  it 
is  to  take  back,  in  the  same  shape,  a  portion  of  the 
principal  or  interest.  It  is  obvious,  too,  that  this 
may  be  carried  so  far  as  essentially  to  destroy  the 
transferable  capacity.  But  what  is  a  tax  upon  trans 
fers,  other  than  the  faculty  of  taking  away  from  the 
actual  proprietor  of  stock  a  portion  of  his  principal, 


288  Alexander  Hamilton 

whenever  his  interests  or  his  necessities  demand  a 
transfer,  in  derogation  from  the  full  enjoyment  of 
the  right  to  transfer,  and  from  the  express  promise 
of  the  government  to  pay  to  him  or  his  alienee? 
For  it  is  upon  the  seller,  not  upon  the  buyer,  that 
such  a  tax  will  fall.  And  where  is  the  substantial 
difference,  on  the  ground  of  contract,  between  this 
and  a  direct  tax  upon  the  fund  itself?  The  value  of 
it  is  as  certainly  impaired  by  the  one  as  by  the  other. 

But  shall  the  proprietor  of  money  in  the  funds, 
then,  be  exempt  from  his  proportion  of  the  burthens 
which  other  citizens  bear? 

This  will  not  be  the  consequence  of  the  principle. 
As  a  consumer,  of  which  his  income  is  the  instrument, 
he  will  pay  his  proportion  of  the  taxes  on  consump 
tion.  As  a  holder  of  any  other  species  of  property 
procured  by  that  income,  or  otherwise,  which  is 
liable  to  a  tax,  he  must  also  contribute  his  pro 
portion. 

But,  without  undue  refinement,  the  lender  of 
money  to  the  public  may  be  affirmed  to  have  paid 
his  tax  when  he  lends  his  money. 

Relying  upon  the  engagement  of  the  government, 
express  or  implied,  that  he  will  receive  what  is  pro 
mised  him,  without  defalcation,  he  is  content  with  a 
less  interest  than  he  would  take  if  subject  to  any 
such  defalcation,  and  especially  if  it  was  to  be  arbi 
trary  as  to  its  extent.  In  this  lower  rate  of  interest 
he  may  be  truly  said  to  pay  his  tax,  or  to  purchase 
an  exemption  from  it. 

Here,  also,  we  find  what  is  decisive  on  the  point  of 
expediency. 


Public  Credit  289 

If  the  government  had  a  right  to  tax  its  funds,  the 
exercise  of  that  right  would  cost  much  more  than  it 
was  worth.  The  money-lender  would  exact  exor 
bitant  premiums,  not  only  as  an  indemnification  for 
the  use  which  the  government  might  probably  make 
of  its  right,  and  which,  in  practice,  would  be  likely 
to  be  qualified  by  some  regard  to  equality  of  con 
tribution,  but  as  an  equivalent  for  insurance  against 
the  risk  or  possibility  of  a  more  extensive  use. 
Hence  the  government  would  be  likely  to  pay  much 
more  in  premiums  upon  its  loans  than  it  would  draw 
back  in  taxes;  and  the  former  being  supposed  but 
equal  to  the  latter,  there  would  be  no  advantage  in 
exercising  the  right. 

But  it  will  be,  perhaps,  more  safe  to  affirm  that 
there  would  be  no  borrowing  at  all  upon  such  terms. 
The  first  precedent  of  a  tax  upon  the  funds  might  be 
expected  to  compel  the  government  to  an  express 
renunciation  of  the  right  in  every  future  loan.  Solid 
capitalists  would  not  be  much  inclined  to  adventure 
their  money  upon  so  precarious  a  footing  as  is  im 
plied  in  a  power  of  taxing  their  credits. 

These  reflections  lead  readily  to  an  estimate  of  the 
impressions  which  would  be  produced  by  the  ex 
ample  of  an  imposition  on  the  funds.  Regarded 
either  as  a  breach  of  contract,  or  as  a  deviation 
from  the  sound  maxims  of  credit,  the  effect  upon 
it  would  be  nearly  equally  fatal.  Whatever  might 
be  excused  to  a  time  of  revolution,  to  a  defect  of 
means,  or  to  some  extraordinary  peculiarity  of  situa 
tion,  no  excuse  would  be  admitted  for  a  deliberate 
departure  from  principles,  at  a  time,  too,  of  national 

VOL.  III.— 19. 


290  Alexander  Hamilton 

prosperity,  in  a  flourishing  state  of  the  finances, 
after  the  foundations  of  a  regular  system  had  been 
laid.  The  departure  would  argue  an  incorrectness, 
an  instability,  or  a  depravity  of  views,  calculated  to 
give  a  lasting  shock  to  public  credit. 

The  United  States  must,  henceforth,  tread  with 
the  most  cautious  steps. 

A  renunciation  of  the  right,  in  future,  might  not 
speedily  heal  the  wound  which  an  example  of  its  ex 
ercise  had  given.  Durable  suspicions  might  fasten 
on  the  wisdom  or  the  integrity  of  the  government, 
which  might  occasion  to  it  no  inconsiderable  loss  and 
embarrassment,  before  a  course  of  contrary  experi 
ence  would  obliterate  them. 

The  right  of  a  government  to  sequester  or  confiscate 
property,  in  its  funds,  in  time  of  war,  involves  con 
siderations  analogous  to  those  which  regard  the  right 
of  taxing  them.  Whether  the  foreigner  be,  himself, 
the  original  lender,  or  the  proprietor  of  stock,  in  its 
constitution  transferable  without  discrimination,  he 
stands  upon  equal  ground  with  the  citizen.  He  has 
an  equal  claim  upon  the  faith  of  the  government. 

In  the  second  case,  as  the  substitute  of  the  original 
lender,  the  promise  made  attaches  immediately  upon 
him.  Indeed,  the  certificates  which  issue  upon  every 
transfer,  and  which  may  be  called  the  public  bonds, 
designate  him  as  the  creditor,  and  expressly  invest 
him  with  the  correspondent  rights. 

To  sequester  or  confiscate  the  stock,  is  as  effectu 
ally  a  breach  of  the  contract  to  pay,  as  to  absorb  it 
by  a  tax.  It  is  to  annihilate  the  promise,  under  the 
sanction  of  which  the  foreigner  became  a  proprietor. 


Public  Credit  291 

But,  does  not  the  general  right  of  war,  to  seize 
and  confiscate  enemy  property,  extend  to  the 
property  of  the  citizens  of  one  nation  in  the  funds 
of  another — the  two  nations  being  at  war  with  each 
other  ? 

Resorting  to  principle  as  the  guide,  this  question 
may,  on  solid  grounds,  be  answered  in  the  negative. 

The  right  to  seize  and  confiscate  individual  pro 
perty,  in  national  wars,  excludes  all  those  cases 
where  the  individual  derives  his  title  from  the  enemy 
sovereign  or  nation :  for  the  right  to  property  always 
implies  the  right  to  be  protected  and  secured  in  the 
enjoyment  of  that  property;  and  a  nation,  by  the 
very  act  of  permitting  the  citizen  of  a  foreign  country 
to  acquire  property  within  its  territory,  whether  to 
lands,  funds,  or  to  any  other  thing,  tacitly  engages 
to  give  protection  and  security  to  that  property,  and 
to  allow  him  as  full  enjoyment  of  it  as  any  other  pro 
prietor — an  engagement  which  no  state  of  things 
between  the  two  nations  can  justly  or  reasonably 
affect.  Though  politically  right,  that,  in  wars  be 
tween  nations,  the  property  of  private  persons, 
which  depend  on  the  laws  of  their  own  country,  or  on 
circumstances  foreign  to  the  nation  with  which  their 
own  is  at  war,  should  be  subject  to  seizure  and  con 
fiscation  by  the  enemy  nation ;  yet  it  is  both  politic 
ally  and  morally  wrong,  that  this  should  extend  to 
property  acquired  under  the  faith  of  the  government, 
and  the  laws  of  that  enemy  nation. 

When  the  government  enters  into  a  contract  with 
the  citizen  of  a  foreign  country,  it  considers  him  as 
an  individual  in  a  state  of  nature,  and  contracts  with 


292  Alexander  Hamilton 

him  as  such.  It  does  not  contract  with  him  as  the 
member  of  another  society. 

The  contracts,  therefore,  with  him,  cannot  be 
affected  by  his  political  relations  to  that  society. 
War,  whatever  right  it  may  give  over  his  other 
property,  can  give  none  over  that  which  he  derives 
from  those  contracts.  The  character  in  which  they 
are  made  with  him,  the  faith  pledged  to  him  person 
ally,  virtually  exempt  it. 

This  principle,  which  seems  critically  correct, 
would  exempt  as  well  the  income  as  the  capital  of 
the  property.  It  protects  the  use  as  effectually  as 
the  thing.  What,  in  fact,  is  property,  but  a  fiction, 
without  the  beneficial  use  of  it?  In  many  cases,  in 
deed,  the  income  or  annuity  is  the  property  itself. 
And  though  general  usage  may  control  the  principle, 
it  can  only  be  as  far  as  the  usage  clearly  goes.  It 
must  not  be  extended  by  analogy. 

Some  of  the  most  approved  publicists,  admitting 
the  principle,  qualify  it  with  regard  to  the  income  of 
lands,  which  they  say  may  be  sequestered  "  to  hinder 
the  remittance  of  it  to  the  enemy's  country." 

But  the  same  authority  affirms  that  a  state  of  war 
"  does  not  so  much  as  touch  the  sums  which  it  owes 
to  the  enemy.  Everywhere,  in  case  of  a  war,  funds 
credited  to  the  public,  are  exempt  from  confiscation 
and  seizure."  These  expressions  clearly  exclude  se 
questration  as  well  as  confiscation. 

The  former  no  less  than  the  latter,  would  be  in 
consistent  with  the  declarations  that  a  state  of  war 
does  not  so  much  as  touch  the  sums  which  it  owes 
to  the  enemy,  and,  that  funds  credited  to  the  public 


Public  Credit  293 

are  exempt  from  seizure.  And,  on  full  inquiry,  it 
is  believed  that  the  suggestion,  thus  understood,  is 
founded  in  fact. 

Usage,  then,  however  it  may  deviate  in  other  par 
ticulars,  in  respect  to  public  funds,  concurs  with 
principle  in  pronouncing,  that  they  cannot  rightfully 
be  sequestered  in  time  of  war. 

The  usages  of  war,  still  savor  too  much  of  the 
ferocious  maxims  of  the  times,  when  war  was  the 
chief  occupation  of  man.  Enlightened  reason  would 
never  have  pronounced  that  the  persons  or  property 
of  foreigners,  found  in  a  country  at  the  breaking  out 
of  a  war  between  that  country  and  their  own,  were 
liable  to  any  of  the  rigors  which  a  state  of  war 
authorizes  against  the  persons  and  goods  of  the 
enemy.  It  would  have  decreed  to  them,  an  inviola 
ble  sanctuary  in  the  faith  of  those  permissions 
and  those  laws,  by  which  themselves  and  their 
property  had  come  under  the  jurisdiction  where 
they  were  found.  It  would  have  rejected  the 
treachery  of  converting  the  indulgences,  and  even 
rights  of  a  previous  state  of  amity,  into  snares  for 
innocent  individuals. 

Happily,  however,  the  practice  of  later  times  has 
left  several  of  those  maxims  little  more  than  points 
of  obsolete  doctrine.  They  still  retain  their  rank  in 
theory ;  but  usage  has  introduced  so  many  qualifica 
tions,  as  nearly  to  destroy  their  operation. 

This  appears  from  the  acknowledgement  of  writers, 
from  the  barrenness  of  modern  history  in  examples  of 
the  application  of  those  doctrines,  from  the  opinions 
known  to  be  generally  current  in  Europe,  and  from  a 


294  Alexander  Hamilton 

variety  of  articles  which  are  constant  formulas  in 
treaties  of  the  present  century. 

The  United  States  are  every  way  interested  in  the 
mitigation  of  the  rigor  of  the  ancient  maxims  of  war. 
They  cannot  better  demonstrate  their  wisdom,  than 
by  their  moderation  in  this  respect.  Particularly  in 
terested  in  maintaining,  in  their  greatest  purity  and 
energy,  the  principles  of  credit,  they  cannot  too 
strictly  adhere  to  all  the  relaxations  of  those  maxims 
which  favor  the  rights  of  creditors.  No  temporary 
advantage  can  compensate  for  the  evils  of  a  different 
course  of  conduct. 

Credit,  public  and  private,  is  of  the  greatest  con 
sequence  to  every  country.  Of  this,  it  might  be 
emphatically  called  the  invigorating  principle.  No 
well-informed  man  can  cast  a  retrospective  eye  over 
the  progress  of  the  United  States,  from  their  infancy 
to  the  present  period,  without  being  convinced  that 
they  owe,  in  a  great  degree,  to  the  fostering  influence 
of  credit,  their  present  mature  growth.  This  credit 
has  been  of  a  mixed  nature,  mercantile  and  public, 
foreign  and  domestic.  Credit  abroad  was  the  trunk 
of  our  mercantile  credit,  from  which  issued  ramifica 
tions  that  nourished  all  the  parts  of  domestic  labor 
and  industry.  The  bills  of  credit  emitted,  from  time 
to  time,  by  the  different  local  governments,  which 
passed  current  as  money,  co-operated  with  that  re 
source.  Their  united  force,  quickening  the  energies 
and  bringing  into  action  the  capacities  for  improve 
ment  of  a  new  country,  was  highly  instrumental  in 
accelerating  its  growth. 

Credit,  too,  animated  and  supported  by  the  general 


Public  Credit  295 

zeal,  had  a  great  share  in  accomplishing,  without  such 
violent  expedients,  as,  generating  universal  distress, 
would  have  endangered  the  issue,  that  Revolution,  of 
which  we  are  so  justly  proud,  and  to  which  we  are  so 
greatly  indebted. 

Credit,  likewise,  may,  no  doubt,  claim  a  principal 
agency  in  that  increase  of  national  and  individual 
welfare  since  the  establishment  of  the  present  govern 
ment,  which  is  so  generally  felt  and  acknowledged, 
though  the  true  causes  of  it  are  not  as  generally 
understood.  It  is  the  constant  auxiliary  of  almost 
every  public  operation;  has  been  an  indispensable 
one  in  those  measures  by  which  our  frontiers  have 
been  defended;  and  it  would  not  be  difficult  to 
demonstrate  that,  in  a  recent  and  delicate  instance, 
it  has  materially  contributed  to  the  safety  of  the 
state. 

There  can  be  no  time,  no  state  of  things,  in  which 
credit  is  not  essential  to  a  nation,  especially  as  long 
as  nations  in  general  continue  to  use  it  as  a  resource 
in  war.  It  is  impossible  for  a  country  to  contend,  on 
equal  terms,  or  to  be  secure  against  the  enterprises  of 
other  nations,  without  being  able  equally  with  them 
to  avail  itself  of  this  important  resource;  and  to  a 
young  country,  with  moderate  pecuniary  capital,  and 
not  a  very  various  industry,  it  is  still  more  necessary 
than  to  countries  more  advanced  in  both.  A  truth 
not  less  weighty  for  being  obvious  and  frequently 
noticed. 

Public  credit  has  been  well  defined  to  be  "  a  faculty 
to  borrow,  at  pleasure,  considerable  sums  on  moder 
ate  terms;  the  art  of  distributing,  over  a  succession 


296  Alexander  Hamilton 

of  years,  the  extraordinary  efforts,  found  indispens 
able  in  one ;  a  means  of  accelerating  the  prompt  em 
ployment  of  all  the  abilities  of  a  nation,  and  even 
of  disposing  of  a  part  of  the  overplus  of  others." 

This  just  and  ingenious  definition  condenses  to 
a  point  the  principal  arguments  in  favor  of  public 
credit,  and  displays  its  immense  importance. 

Let  any  man  consult  the  actual  course  of  our 
pecuniary  operations,  and  let  him  then  say  whether 
credit  be  not  eminently  useful.  Let  him  imagine  the 
expense  of  a  single  campaign  in  a  war  with  a  great 
European  Power;  and  let  him  then  pronounce 
whether  credit  would  not  be  indispensable.  Let 
him  decide  whether  it  would  be  practicable,  at  all, 
to  raise  the  necessary  sum  by  taxes  within  the  year, 
and  let  him  judge  what  would  be  the  degree  of  dis 
tress  and  oppression,  which  the  attempt  would  occa 
sion  to  the  community.  He  cannot  but  conclude 
that  war,  without  credit,  would  be  more  than  a  great 
calamity — would  be  ruin. 

But  credit  is  not  only  one  of  the  main  pillars  of  the 
public  safety;  it  is  among  the  principal  engines  of 
useful  enterprise  and  internal  improvement.  As  a 
substitute  for  capital,  it  is  a  little  less  useful  than  gold 
or  silver,  in  agriculture,  in  commerce,  in  the  manu 
facturing  and  mechanic  arts. 

The  proof  of  this  needs  no  labored  deduction.  It 
is  matter  of  daily  experience  in  the  most  familiar 
pursuits.  One  man  wishes  to  take  up  and  cultivate 
a  piece  of  land;  he  purchases  upon  credit,  and,  in 
time,  pays  the  purchase  money  out  of  the  produce 
of  the  soil  improved  by  his  labor.  Another  sets  up 


Public  Credit  297 

in  trade ;  in  the  credit  founded  upon  a  fair  character, 
he  seeks,  and  often  finds,  the  means  of  becoming,  at 
length,  a  wealthy  merchant.  A  third  commences 
business  as  manufacturer  or  mechanic,  with  skill,  but 
without  money.  It  is  by  credit  that  he  is  enabled  to 
procure  the  tools,  the  materials,  and  even  the  sub 
sistence  of  which  he  stands  in  need,  until  his  industry 
has  supplied  him  with  capital;  and,  even  then,  he 
derives,  from  an  established  and  increased  credit, 
the  means  of  extending  his  undertakings. 

Among  the  circumstances  which  recommend  credit, 
and  indicate  its  importance  in  the  whole  system  of 
internal  exertion  and  amelioration,  it  is  impossible 
to  pass,  unnoticed,  its  unquestionable  tendency 
to  moderate  the  rate  of  interest — a  circumstance 
of  infinite  value  in  all  the  operations  of  labor  and 
industry. 

If  the  individual  capital  of  this  country  has  become 
more  adequate  to  its  exigencies  than  formerly,  it  is 
because  individuals  have  found  new  resources  in 
the  public  credit — in  the  funds  to  which  that  has 
given  value  and  activity.  Let  public  credit  be  pro 
strated,  and  the  deficiency  will  be  greater  than,  be 
fore.  Public  and  private  credit  are  closely  allied,  if 
not  inseparable.  There  is,  perhaps,  no  example  of 
the  one  being  in  a  flourishing,  where  the  other  was  in 
a  bad  state.  A  shock  to  public  credit  would,  there 
fore,  not  only  take  away  the  additional  means  which 
it  has  furnished,  but  by  the  derangements,  disorders, 
distrusts,  and  false  principles  which  it  would  en 
gender  and  disseminate,  would  diminish  the  anteced 
ent  resources  of  private  credit. 


298  Alexander  Hamilton 

The  United  States  possess  an  immense  mass  of 
improvable  matter;  the  development  of  it,  continu 
ally  making,  may  be  said  to  enlarge  the  field  of 
improvement  as  it  progresses ;  and,  though  the  active 
capital  of  the  country  has,  no  doubt,  considerably 
increased,  it  is  probable  that  it  does  not  bear,  at  pre 
sent,  a  much  greater  proportion  to  the  objects  of  em 
ployment  than  it  has  done  at  any  former  period. 
Credit,  upon  this  hypothesis,  of  every  kind,  is  nearly 
as  necessary  to  us  now,  as  it  ever  was.  But,  at  least, 
it  may  be  affirmed  with  absolute  certainty  that,  to  a 
country  so  situated,  credit  is  peculiarly  useful  and 
important. 

If  the  United  States  observe,  with  delicate  caution, 
the  maxims  of  credit,  as  well  toward  foreigners  as 
their  own  citizens,  in  connection  with  the  general 
principles  of  an  upright,  stable,  and  systematic  ad 
ministration,  the  strong  attractions  which  they  pre 
sent  to  foreign  capital  will  be  likely  to  insure  them 
the  command  of  as  much  as  they  may  want,  in 
addition  to  their  own,  for  every  species  of  internal 
amelioration. 

Can  it  be  doubted  that  they  would  derive  from 
this,  in  a  course  of  time,  advantages  incomparably 
greater  than  any,  however  tempting,  that  could  par 
tially  result  from  a  disregard  of  those  maxims,  or 
from  the  exercise  of  a  questionable  right,  which 
should  even  appear  to  derogate  from  them? 

Credit  is  an  entire  thing.  Every  part  of  it  has  the 
nicest  sympathy  with  every  other  part;  wound  one 
limb,  and  the  whole  tree  shrinks  and  decays. 

The  security  of  each  creditor  is  inseparable  from 


Public  Credit  299 

the  security  of  all  creditors.  The  boundary  between 
foreigner  and  citizen  would  not  be  deemed  a  sufficient 
barrier  against  extending  the  precedent  of  an  inva 
sion  of  the  rights  of  the  former  to  the  latter.  The 
most  judicious  and  cautions  would  be  most  apt  to 
reason  thus,  and  would  only  look  for  stronger  shades 
of  apparent  necessity  or  expediency  to  govern  the 
extension.  And,  in  affairs  of  credit,  the  opinion  of 
the  judicious  and  cautions  may  be  expected  to  pre 
vail.  Hence  the  government,  by  sequestering  the 
property  of  foreign  citizens  in  the  public  funds  at  the 
commencement  of  a  war,  would  impair,  at  least,  if 
not  destroy,  that  credit  which  is  the  best  resource  in 
war. 

It  is  in  vain  to  attempt  to  disparage  credit  by 
objecting  to  its  abuses.  What  is  there  not  liable  to 
abuse  or  misuse?  The  precious  metals,  those  great 
springs  of  labor  and  industry,  are  also  the  minis 
ters  of  extravagance,  luxury,  and  corruption.  Com 
merce,  the  nurse  of  agriculture  and  manufactures,  if 
overdriven,  leads  to  bankruptcy  and  distress.  A  fer 
tile  soil,  the  principal  source  of  human  comfort,  not 
unfrequently  begets  indolence  and  effeminacy.  Even 
liberty  itself,  degenerating  into  licentiousness,  pro 
duces  a  frightful  complication  of  ills,  and  works  its 
own  destruction. 

It  is  wisdom,  in  every  case,  to  cherish  whatever  is 
useful,  and  guard  against  its  abuse.  It  will  be  the 
truest  policy  of  the  United  States  to  give  all  possible 
energy  to  public  credit,  by  a  firm  adherence  to  its 
strictest  maxims;  and  yet  to  avoid  the  ills  of  an 
excessive  employment  of  it  by  true  economy  and 


300  Alexander  Hamilton 

system  in  the  public  expenditures ;  by  steadily  cul 
tivating  peace;  and  by  using  sincere,  efficient,  and 
persevering  endeavors  to  diminish  present  debts, 
prevent  the  accumulation  of  new,  and  secure  the  dis 
charge,  within  a  reasonable  period,  of  such  as  it  may 
be  at  any  time  matter  of  necessity  to  contract.  It 
will  be  wise  to  cultivate  and  foster  private  credit  by 
an  exemplary  observance  of  the  principles  of  public 
credit,  and  to  guard  against  the  misuse  of  the  former 
by  a  speedy  and  vigorous  administration  of  justice, 
and  by  taking  away  every  temptation  to  run  in  debt, 
founded  in  the  hope  of  evading  the  just  claims  of 
creditors. 

As  an  honorable  evidence  of  this  disposition,  and 
with  a  view  to  quite  the  alarms  which  have  been 
excited,  and  to  silence  forever  a  question  which  can 
never  be  agitated  without  serious  inconvenience,  the 
Secretary  of  the  Treasury,  in  the  last  place,  respect 
fully  submits: 

That  there  be  an  express  renunciation,  by  law,  of  all 
pretension  of  right  to  tax  the  public  funds,  or  to  se 
quester,  at  any  time,  or  on  any  pretext,  the  property 
which  foreign  citizens  may  hold  therein. 

This  will  be  particularly  essential  to  the  success  of 
the  plan  for  converting  the  foreign  into  domestic 
debt;  as  the  present  contracts  for  the  Amsterdam 
and  Antwerp  debt  contain  an  equivalent  stipulation, 
and  there  is  no  prospect  that  the  creditors  would  con 
sent  to  a  change,  but  upon  the  condition  of  a  like 
stipulation. 

In  the  commencement  of  this  report,  it  was  the 
intention  to  submit  some  propositions  for  the  im- 


Improvement  of  the  Revenue  301 

provement  of  the  several  branches  of  the  public 
revenue;  but  it  is  deemed  advisable  to  reserve  this 
part  of  the  subject  for  a  future  communication. 
All  which  is  respectfully  submitted. 

ALEXANDER  HAMILTON, 
Secretary  of  the  Treasury.1 


IMPROVEMENT  OF  THE  REVENUE 

Communicated  to  the  House  of  Representatives,  February  2,  1795. 
TREASURY  DEPARTMENT,  January  31,  1795. 

The  Secretary  of  the  Treasury  respectfully  makes 
the  following  report  to  the  House  of  Representatives : 

According  to  the  present  laws,  imposing  duties  on 
articles  imported  into  the  United  States,  not  much 
short  of  one  third  of  the  whole  amount  of  the  duties 
is  derived  from  articles  rated  ad  valorem. 

In  other  nations,  where  this  branch  of  revenue,  as 
with  us,  is  of  principal  or  very  considerable  conse 
quence,  and  where  no  peculiarity  of  situation  has 
tended  to  keep  the  rates  of  duty  low,  experience  has 
led  to  contract  more  and  more  the  number  of  articles 
rated  ad  valorem,  and  of  course  to  extend  the  number 

1  This  report  was  Hamilton's  last  message  to  the  American  people 
in  closing  his  career  as  Secretary  of  the  Treasury.  It  is  quite  as  able 
as  the  first  report,  but  less  known  because  the  first  portion  involves 
so  many  details.  It  reviews  the  whole  financial  policy  in  a  masterly 
manner,  and  the  last  part,  which  deals  with  the  taxation  of  pub 
lic  funds  and  their  sequestration  in  case  of  war,  is  an  appeal  and  an 
argument  in  behalf  of  a  high  public  credit,  especially  with  reference 
to  the  United  States,  which  has  never  been  surpassed.  The  high 
tone  of  the  views  set  forth  and  the  eloquence  and  even  fervor  of  the 
reasoning  make  it  one  of  the  greatest  among  Hamilton's  many  great 
State  papers. 


3O2  Alexander  Hamilton 

of  those  rated  specifically,  that  is,  according  to  weight, 
measure,  or  other  rule  of  quantity. 

The  reason  of  this  is  obvious.  It  is  to  guard 
against  evasions  which  infallibly  happen,  in  a  greater 
or  less  degree,  where  duties  are  high.  It  is  impossible 
for  the  merchants  of  any  country  to  have  manifested 
more  probity  than  those  of  the  United  States,  on  this 
subject;  and  it  is  firmly  believed,  that  there  never 
was  one  in  which  illicit  practices,  to  the  disadvantage 
of  the  revenue,  have  obtained  so  little  as  hitherto  in 
this;  yet  it  would  be  a  delusive  expectation  that, 
with  duties  so  considerable  as  those  which  now  exist, 
a  disposition  will  not  be  experienced,  in  some  indi 
viduals  who  carry  on  our  import  trade,  to  evade  the 
payment  of  them,  and  this  to  an  extent  sufficient  to 
make  it  prudent  to  guard  with  circumspection,  and 
by  every  reasonable  precaution,  against  the  success 
of  such  attempts.  It  is  needless  to  repeat,  that  this 
will  contribute  as  much  to  the  interest  of  the  fair 
trader,  as  to  that  of  the  revenue. 

It  is  believed  that,  in  our  system,  the  method  of 
rating  ad  valorem  could,  with  convenience,  be  brought 
within  a  much  narrower  compass;  and  it  is  evident 
that,  to  do  so,  will  contribute  materially  to  the  se 
curity  of  the  revenue. 

The  Secretary  has  not  hitherto  had  leisure  to  digest 
the  details  of  a  plan  for  this  purpose ;  but,  if  the  idea 
is  approved,  it  can  be  carried  with  due  accuracy  into 
effect,  at  a  future  session,  by  an  order  upon  the  head 
of  this  Department  to  prepare,  in  the  meantime,  a 
tariff  proportioned  to  the  actual  rates  of  duty. 

It  may  also  be  found  expedient,  with  a  similar 


Improvement  of  the  Revenue  303 

view,  to  adjust  anew  the  proportional  rates  of  duty, 
of  different  kinds  or  qualities,  of  certain  articles. 
This  observation  is  believed  to  apply,  with  particular 
force,  to  teas.  It  would  be,  in  the  opinion  of  the 
Secretary,  advisable  to  throw  them  into  three  classes : 
to  raise  somewhat  the  lowest  rate,  and  to  diminish 
considerably  the  higher  rates.  A  persuasion  is  enter 
tained,  founded  partly  upon  observation  of  the  course 
of  importations,  that  a  regulation  of  this  kind  would 
benefit  the  revenue.  The  same  thing  might  be  con 
veniently  extended  to  some  other  articles. 

Advantages  will  also  accrue  from  a  re-adjustment 
of  the  rates,  in  certain  cases,  by  combining  several 
rates  on  the  same  articles,  established  by  different 
acts,  into  one  rate,  and  by  dismissing  inconvenient 
fractions,  which  serve  to  perplex  the  calculation  of 
the  duties.  Some  alteration  in  the  terms  of  credit 
for  duties  may,  it  is  conceived,  be  made  with  advant 
age.  Where  four  months  are  allowed,  three  and  six 
months  may  be  substituted;  and  three,  six,  nine,  and 
twelve,  or  even  three,  six,  nine,  twelve,  and  fifteen, 
to  the  cases  of  six,  nine,  and  twelve  months.  This 
will  apportion  the  course  of  receipts  more  according 
to  the  course  of  payments,  and  prevent  inconvenient 
pressures  at  particular  junctures. 

The  compensations  to  inspectors,  especially  in  the 
ports  where  the  expense  of  living  is  great,  and  to 
collectors  and  surveyors  in  the  less  productive  ports, 
urgently  demand  revision,  in  order  to  an  increase  of 
them. 

The  security  of  the  revenue,  in  every  branch,  turns 
(it  will  not  be  too  strong  to  say)  principally  upon  the 


304  Alexander  Hamilton 

officers  of  the  lowest  grade.  Hence,  it  is  a  policy  no 
less  mistaken  than  common,  to  leave  those  officers 
without  such  compensations  as  will  admit  of  a  proper 
selection  of  character,  and  prevent  the  temptation, 
from  indigence,  to  abuse  the  trust.  It  is  certain 
that,  in  many  places,  the  present  allowance  to  in 
spectors,  on  the  most  liberal  application  of  it,  is  in 
adequate  to  those  important  ends. 

A  similar  reasoning  will  apply  to  those  officers  of 
the  principal  grades  who,  being  in  districts  which  pro 
duce  little,  are  ill  compensated  by  the  emoluments  to 
which  they  are  at  present  entitled.  It  cannot  escape 
observation,  that  the  safety  of  the  revenue  must  de 
pend  on  equal  fidelity  and  due  vigilance  in  all  the 
districts;  else  it  may  become,  in  many  cases,  worth 
the  while  to  resort  to  particular  districts,  because 
there  is  a  deficiency  of  the  one  or  the  other.  Besides 
that,  it  is  in  itself  just  and  proper  that  all  who  are  in 
the  public  service  should  receive  adequate  rewards 
for  their  time,  attention,  and  trouble. 

The  aggregate  expense  of  collecting  the  duties  on 
impost  and  tonnage  is  at  present  truly  moderate — a 
circumstance  which  facilitates  the  extension  of  allow 
ances  where  they  are  necessary.  The  system  of  the 
revenue  cutters  needs  revision.  The  utility  of  every 
institution  depends  on  the  competency  of  the  agents 
who  are  to  execute  it.  The  present  compensations 
to  officers  and  men,  compared  with  what  may  be 
obtained  in  other  similar  employment,  unaided  by 
collateral  motives,  creates  a  degree  of  embarrassment 
which  very  much  impairs  the  usefulness  of  the  thing. 
It  would  have  been,  in  the  judgment  of  the  Secretary, 


Improvement  of  the  Revenue  305 

a  great  means  of  rendering  it  competent  to  its  object, 
if,  as  was  early  suggested  by  him,  the  officers  of  the 
customs  had  had  rank  in  the  navy  of  the  United 
States. 

With  regard  to  that  branch  of  revenue  which  is 
constituted  by  the  duties  upon  spirits  distilled  within 
the  United  States,  and  upon  stills,  it  is  believed  that 
it  would  be  an  improvement,  and  one  which  could 
be  now  made  without  inconvenience,  to  abolish  the 
option  to  pay  by  the  gallon  of  the  spirits  distilled,  in 
the  cases  where  the  duties  are  charged  on  the  stills. 
This  will  leave  the  alternative  of  paying  by  the  year, 
or  for  less  periods,  upon  licenses,  at  the  choice  of  the 
party ;  an  alternative  which  affords  sufficient  accom 
modation  to  the  difference  of  circumstances.  The 
option  to  pay  by  the  gallon  of  the  spirits  distilled, 
according  to  an  account  to  be  rendered  on  the  oath 
of  the  party,  though  expedient  in  the  first  experi 
ment  of  the  law,  is  objectionable,  as  a  permanent 
regulation,  in  a  double  view. 

The  additional  discretionary  latitude  given  to  com 
pensations  to  the  officers  concerned  in  the  collection 
of  those  duties,  is  restricted  to  a  term  which  will  ex 
pire  at  the  end  of  the  next  session  of  Congress.  It 
will  be  essential  to  extend  it,  or  to  fix  the  compen 
sations  which  will  have  been  allowed.  It  is  believed 
that  further  experience  will  still  be  useful  towards  a 
definitive  legislative  adjustment. 

Embarrassments  are  experienced  from  the  want  of 
a  concurrent  authority  in  these  officers,  similar  to 
that  of  the  officers  of  the  customs,  to  make  seizures 
within  each  other's  surveys  or  divisions.  On  the 


VOL.  HI.—  30. 


306  Alexander  Hamilton 

borders  of  such  as  are  adjacent,  the  officers  are  ex 
posed  to  hazard  in  making  seizures,  and  better  op 
portunities  are  afforded  of  escaping  detection. 

The  revenue  to  result  from  the  act  of  the  last  ses 
sion,  laying  duties  upon  licenses  to  retailers  of  wines 
and  distilled  spirits,  may  be  improved,  favorable  to 
proportional  equality,  by  changing  the  form. 

One  license,  for  selling  one  or  more  kinds  of  wines, 
puts  the  greatest  and  the  smallest  dealer  upon  the 
same  footing,  and  is  so  far  inequitable.  To  class 
wines  into  a  few  obvious  and  strongly  marked  dis 
criminations,  and  to  render  a  license  necessary  for 
each  class,  with  a  duty  upon  each  license,  would 
favor  a  just  distribution  of  the  tax  among  great  and 
small  dealers,  and  would,  at  the  same  time,  benefit 
the  revenue.  The  classes  may  be  as  follows:  ist. 
Madeira  wine.  2d.  Sherry  wine.  3d.  Port  wine. 
4th.  Other  wines. 

To  secure  the  effect  of  the  discrimination  in  favor 
of  small  dealers,  who  may  be  in  the  practice  of  selling 
and  sending  out  different  kinds  of  wines  in  small 
quantities,  it  may  be  provided  that  not  more  than 
one  license  shall  be  necessary  to  any  dealer  who  never 
sells  or  sends  out  at  one  time  more  than  three  gallons. 
And  suitable  penalties  may  be  annexed  to  guard  the 
condition  of  the  exemption. 

Similar  observations  are  applicable  to  licenses  to 
retailers  of  spirituous  liquors.  These  may  be  thrown 
into  three  classes:  ist.  Spirits  distilled  from  the 
grape,  commonly  called  brandy.  2d.  Spirits  dis 
tilled  from  the  produce  of  the  sugar  cane,  commonly 
called  rum.  3d.  Other  distilled  spirits;  and  there 


Improvement  of  the  Revenue  307 

may  be  a  like  provision  in  favor  of  dealers  who  never 
sell  or  send  out  more  than  three  gallons  at  one 
time. 

Distillers  may  be  put,  in  this  respect,  as  to  the 
spirits  they  distil,  upon  the  same  footing  with  im 
porters;  that  is,  they  may  be  exempt  from  the 
license  duty,  but  it  would  seem  proper  to  annex 
these  conditions  to  the  exemption,  that  they  shall 
not  sell  and  send  out  a  less  quantity,  in  one  cask, 
vessel,  or  package,  than  ten  gallons;  and  that  they 
shall  not  deal  in  the  selling  at  retail  of  any  other 
spirits  than  those  they  themselves  distil. 

Or  another  rule  may  be  adopted,  for  proportioning 
the  tax  to  the  extent  of  the  dealing ;  which  is,  to  add 
to  the  present  rate  of  the  license  certain  supple 
mental  rates,  according  to  the  yearly  rent  or  yearly 
value,  by  appraisement,  of  the  house  or  building  in 
which  the  retailers  of  wines  or  spirituous  liquors  shall 
carry  on  the  business. 

This  has  been  found,  in  practice,  a  convenient,  and, 
upon  the  whole,  an  equitable  rule  of  proportion; 
evidently  more  so  than  one  license  with  the  same 
duty  to  all  dealers  indiscriminately. 

It  is  a  general  and  a  wise  national  policy  to  make 
these  articles  of  wine  and  spirits  as  contributory  to 
the  revenue  as  can  be  made;  which  can  only  be 
effected  by  subdividing  the  duties  upon  them  in  the 
different  stages  of  their  passage  to  the  consumer. 
The  branch  under  consideration  might  be  an  im 
portant  one.  As  it  is  now  regulated  it  is  feared  that 
it  may  prove  of  inconsiderable  consequence.  The 
confining  of  the  license  for  selling  spirituous  liquors 


308  Alexander  Hamilton 

to  foreign  spirits,  must  give  great  facility  to  evasions. 
And  it  has  an  unequal  operation  upon  different  por 
tions  of  the  community. 

It  would  promote  the  object  of  the  act,  which  im 
poses  duties  on  sales  at  auction,  to  allow  two  and  a 
half  per  centum  to  each  auctioneer,  in  lieu  of  the 
one  per  centum  allowed  by  the  ninth  section  of  that 
act.  It  is  believed  that  the  present  allowance  is  in 
sufficient  to  defray  the  expenses  of  clerkship  incident 
to  a  compliance  with  the  requisitions  of  the  law, 
which  cannot  be  rendered  less  particular  or  exact 
without  prejudice  to  the  revenue. 

The  tax  upon  snuff,  according  to  a  rate  per  pound, 
will  be  liable  to  very  great  evasions,  without  regula 
tions  for  a  close  inspection  of  the  course  of  the  busi 
ness.  Dispensing  with  these,  it  seems  advisable  to 
modify  the  tax  upon  a  different  plan.  The  pro 
position  to  lay  it  upon  the  mortar  is  as  good  a  sub 
stitute  as  has  occurred.  It  appears,  upon  evidence 
which  is  credited,  that  a  snuff  mill  usually  works 
about  one  half  the  year;  that  is,  one  hundred  and 
fifty-six  working  days  in  a  year;  and  yields,  per 
mortar,  of  the  whole  number  of  mortars  contained 
in  a  mill,  an  average  of  forty-five  pounds  of  snuff 
per  day.  It  follows  that  five  hundred  and  sixty-one 
dollars  at  sixty-six  cents  per  mortar,  per  annum,  is 
the  equivalent  of  the  present  duty  of  eight  cents  per 
pound.  There  are  objections  to  this  form  of  the  tax ; 
but,  as  it  appears  to  be  generally  desired  by  the 
manufacturers,  it  seems  advisable  to  forego  them; 
especially  as  the  present  plan  demands  far  more 
rigorous  precautions  for  the  effectual  collection  of 


Improvement  of  the  Revenue  309 

the  duty  than  now  exist,  or  than  would  be  deemed 
expedient. 

A  similar  difficulty  attends  the  tax  upon  refined 
sugar;  but  a  proper  substitute  for  the  present  plan 
is  not  perceived.  It  will  fortify  the  revenue,  and 
produce  no  undue  inconvenience  to  the  manufacturer, 
if  he  be  required  to  annex  a  ticket  or  tickets  to  each 
loaf  of  sugar,  specifying  the  weight  in  pounds;  and 
to  each  cask,  barrel,  keg,  box,  or  other  package  of 
refined  sugar,  specifying  the  contents  and  weight  in 
pounds,  corresponding  certificates  or  tickets  to  ac 
company  imported  refined  sugar.  The  kinds  of 
tickets  to  be  furnished  by  the  respective  supervisors, 
and  accounted  for  to  them.  The  observance  of  this 
regulation  to  be  secured  by  proper  penalties. 

The  act  which  lays  a  duty  on  carriages  for  the  con 
veyance  of  persons,  exempts  from  the  duty  carriages 
usually  and  chiefly  employed  in  husbandry,  and  in 
carrying  commodities.  It  is  a  material  defect  in  this 
act,  as  has  been  already  experienced,  that  it  provides 
no  summary  mode  for  determining  what  carriages 
are  within  the  exempting  description.  Now,  every 
disputed  case  must  be  the  subject  of  a  suit  in  all  the 
legal  forms;  which  is  equally  objectionable  on  the 
score  of  delay  and  expense.  It  is  not  perceived  that 
any  insurmountable  difficulty  lies  in  the  way  of  pro 
viding  a  remedy  consistently  with  a  due  reference,  in 
the  last  resort,  to  the  judiciary  authority. 

In  revenue  laws,  too  much  is  as  great  a  fault  as  too 
little  simplicity.  It  leaves  them  unpro visional ;  in 
capable  of  execution  in  a  manner  convenient  either 
to  the  public  or  to  individuals.  The  acts  imposing 


310  Alexander  Hamilton 

duties  on  licenses  for  selling  wines  and  spirituous 
liquors  at  retail,  and  upon  sales  at  auction,  authorize 
allowances  not  exceeding  two  and  a  half  per  cent,  for 
compensation  to  officers,  and  for  incidental  expenses. 
The  acts  laying  duties  upon  carriages  for  the  con 
veyance  of  persons,  and  upon  snuff  and  refined  sugar, 
make  no  provision  for  such  compensations,  or  other 
expenses  of  collection.  It  is  the  opinion  of  the  Secre 
tary  that  the  rate  of  two  and  a  half  per  cent.,  in  the 
two  first  mentioned  acts,  is  inadequate — that  it  ought 
to  be  extended  to  five  per  cent.,  and  that  an  equal 
provision  should  be  made  for  the  expense  of  collec 
tion,  under  the  two  last-mentioned  acts. 

The  restrictions  upon  officers  of  the  customs,  and 
upon  the  supervisors  and  other  officers  of  inspection, 
with  regard  to  the  public  funds,  appear  to  the  Secre 
tary  unnecessary  and  inconvenient :  unnecessary,  be 
cause  those  officers,  having  no  concern  whatever  with 
any  branch  of  public  business  that  respects  the  man 
agement  of  the  funds,  can  have  no  official  influence 
upon  the  policy  or  execution  of  the  measures  which 
regard  them,  further  than  by  a  punctual  collection 
of  the  revenues;  inconvenient,  because  it  deprives 
them  of  a  means  of  investing  any  little  sums  they 
may  save  or  acquire,  in  a  mode  very  convenient  to 
men  who,  from  situation,  are  less  liable  to  avail 
themselves  of  other  opportunities.  If  the  being 
stockholders  can  have  any  influence  upon  them  as 
officers,  it  must  be  of  a  kind  favorable  to  the  public 
service,  by  increasing  their  personal  interest  in  the 
exact  collection  of  the  revenue.  If  the  idea  which 
dictated  the  restrictions  was,  that  they  might  use 


Improvement  of  the  Revenue  3 1 1 

the  public  money  in  speculations  in  stock,  the  answer 
is,  that  this  is  not  in  their  power,  from  the  rapidity 
with  which  it  is  transferred  to  the  treasury ;  and  if  it 
were  practicable  for  them  to  divert  the  public  money, 
and  a  disposition  to  do  it  should,  in  any  case,  exist, 
it  might  operate  through  other  channels.  In  lieu  of 
the  restrictions  concerning  the  funds,  the  employ 
ment  of  public  money  for  private  purposes,  may,  if 
thought  necessary,  be  still  further  guarded  against 
by  penalties.  Those  restrictions  in  reference  to  the 
immediate  officers  of  the  Treasury  Department,  and 
the  Commissioners  of  Loans,  are  entirely  proper, 
and  ought  to  be  maintained;  but  it  is  believed  that 
it  is  not  only  useless,  but  injurious,  to  give  them 
greater  extension.  The  multiplication  of  restric 
tions  on  the  public  officers  will  render  greater  com 
pensations  necessary,  and  be  a  source  of  expense  to 
the  public. 

All  which  is  respectfully  submitted. 

ALEXANDER  HAMILTON, 

Secretary  of  the  Treasury. I 

NOTE. — Since  the  conclusion  of  this  report,  the  Secretary  has  learnt 
that  a  bill  (the  progress  of  which  his  peculiar  situation  had  prevented 
his  observing)  has  actually  passed  the  two  Houses,  for  changing  the 
terms  of  six,  nine,  and  twelve  months,  into  eight,  ten,  and  twelve. 
This  bill,  besides  interfering  disadvantageously  with  arrangements  of 
the  treasury,  founded  upon  the  existing  provisions  of  the  laws,  will,  it 
is  apprehended,  tend  to  increase  an  inconvenience  which  the  above 
suggestions  were  meant  to  lessen — the  too  great  concentration  of  mer 
cantile  payments.  Any  accidental  derangement  of  the  mercantile 
body,  from  over-trading,  or  other  cause,  would,  in  this  situation,  en 
danger  consequences  to  the  treasury,  which  it  might  be  difficult  to 
meet  by  other  expedients;  whereas,  a  subdivision  into  shorter  and 
more  numerous  periods,  by  diminishing  the  effect,  would  admit,  in 
such  cases,  of  an  easy  substitute.  The  merchants  themselves  are 
1  This  brief  report  is  full  of  pregnant  and  valuable  suggestions. 


312  Alexander  Hamilton 

particularly  interested  in  this  question;  for  the  reaction  upon  them,  of 
any  embarrassment  of  the  treasury,  might  render  that  a  general  and 
lasting  mischief,  which  might  otherwise  have  been  only  a  partial  and 
transient  disorder. 

BUILDING  TAX 

PLAN   SENT   TO    OLIVER    WOLCOTT,    SECRETARY   OF    THE  TREASURY, 
JUNE    7,    1797 

A  million  of  dollars  per  annum  on  buildings  and 
lands  on  the  following  plan : 

i st.  Upon  inhabited  dwelling-houses  thus: — 

Upon  every  such  house  of  the  denomination  and 
description  of  a  log  house,  at  the  rate  of  20  cents  for 
each  room  or  apartment  thereof,  exclusive  of  garret 
and  cellar. 

Upon  every  other  inhabited  dwelling-house  of  two 
rooms  or  apartments,  exclusive  of  halls  or  entries, 
garrets  and  cellars,  at  the  rate  of  25  cents  for  each 
room  or  apartment. 

Upon  every  such  house  of  three  rooms  or  apart 
ments,  exclusive  as  before,  at  the  rate  of  33^-  cents 
for  each  room  or  apartment. 

Upon  every  such  house  of  four  rooms,  exclusive 
as  before,  at  the  rate  of  40  cents  for  each  room  or 
apartment. 

Upon  every  such  house  of  five  rooms,  exclusive 
as  before,  at  the  rate  of  60  cents  for  each  room  or 
apartment. 

Upon  every  such  house  of  six  rooms,  exclusive  as 
before,  at  the  rate  of  75  cents  for  each  room  or 
apartment  thereof. 

Upon  every  such  house  of  seven  rooms  and  up 
wards,  at  the  rate  of  100  cents  for  each  room,  etc. 


Building  Tax  313 

Remarks. — These  rates  have  been  adjusted  by  ap 
plying  their  operations  to  a  number  of  houses,  from 
which  it  appears  that  they  find  a  sufficiently  exact 
proportion  to  the  rent,  and  they  avoid  the  expense 
and  uncertainty  of  valuation.  Other  circumstances 
of  discrimination,  if  thought  advised,  may  be  added. 

Upon  every  room  in  a  garret  or  cellar  of  a  house  of 
the  foregoing  descriptions,  having  a  fireplace,  and 
upon  any  kitchen,  whether  in  a  cellar  or  adjacent 
building,  at  the  rate  of  20  cents  for  each  room  or 
kitchen. 

Upon  each  room  or  apartment  of  every  such  house 
painted  inside,  the  further  sum  of  25  cents. 

Upon  each  room  or  apartment  of  such  house 
papered  inside,  or  painted  and  bordered  with  paper, 
the  further  sum  of  50  cents. 

Upon  every  chimney,  faced  with  tiles  or  cut  stone 
other  than  marble,  the  further  sum  of  50  cents. 

Upon  every  chimney  faced  with  marble,  the  fur 
ther  sum  of  100  cents. 

Upon  every  staircase  of  cedar  or  ebony  wood,  the 
further  sum  of  50  cents. 

Upon  every  staircase  of  mahogany  wood,  the  fur 
ther  sum  of  100  cents. 

Upon  every  room  or  apartment  with  stucco  cor 
nices,  the  further  sum  of  100  cents. 

Upon  every  room  with  a  stucco  ceiling,  the  further 
sum  of  200  cents;  but  the  same  room  shall  not  also 
be  rated  for  cornices  of  such  work. 

Upon  every  such  house  with  pillars  or  pilasters  out 
side  in  front,  the  further  sum  of  100  cents. 


3H  Alexander  Hamilton 

Upon  every  such  house  faced  outside  and  in  front, 
in  whole  or  in  part,  with  marble,  the  further  sum  of 
200  cents. 

These  rates  to  be  paid  by  the  occupiers  of  the 
house,  whether  owners  or  tenants.  When  a  house  is 
let  by  parcels  the  landlord  to  be  deemed  the  occupier. 

Upon  all  stone  houses  not  being  parts  of  dwelling- 
houses  in  use,  at  the  rate  of  one  fortieth  part  of  the 
yearly  value,  to  be  determined  by  the  actual  rent,  if 
rented,  and  if  not  by  an  estimate  or  valuation 
thereof. 

Upon  all  grist-mills,  at  the  rate  of  125  cents  for 
each  run  of  stone  therein. 

Upon  all  saw-mills  at  the  rate  of  50  cents  for  each 
saw  usually  worked  therein,  not  exceeding  three,  and 
for  each  saw  above  that  number  25  cents. 

Upon  all  wharves  in  the  cities  and  towns  of  Ports 
mouth,  Boston,  etc.,  (enumerating  the  principal 
towns,)  at  the  rate  of  12  J  cents  for  each  foot  in  front 
thereof. 

Upon  all  wharves  in  any  other  city  or  town  at  the 
rate  of  6  cents. 

Remarks. — Or  this  may  be  thrown  into  classes. 

Upon  all  lumber  yards  in  the  cities  or  towns  of 
Portsmouth,  Boston,  etc.,  (enumerating  the  principal 
towns,)  at  the  rate  of  2^  cents  for  each  hundred 
square  feet. 

Cottages  inhabited  by  paupers  to  be  excepted,  to 
be  judged  of  and  ascertained  by  the  assessors  herein 
after  described. 


Building  Tax  315 

The  amount  of  the  foregoing  taxes  in  each  State, 
to  be  ascertained  within  a  time  to  be  limited  by  law 
for  that  purpose  by  the  assessors,  and  a  report  thereof 
to  be  made  to  the  Treasury,  which  shall  then  proceed 
to  apportion,  according  to  the  prescribed  quota,  the 
sum  remaining  to  make  up  the  million  of  dollars  to 
be  levied. 

For  example,  suppose  there  were  five  States,  and 
the  product  of  the  house- tax  of  each  as  follows : 

A.  $100,000 

B.  150,000 

C.  200,000 

D.  50,000 

E.  100,000 


$600,000 

There  would  then  remain  toward  the  million  to  be 
levied  on  lands  $400,000.  Let  there  be  then  assigned 
to  each  State  so  much  in  land-tax  as  together  with  its 
house- tax  will  equal  the  [The  paper  is  incomplete.] 

Remarks. — The  mode  of  ascertaining  to  be  by  an 
actual  calling  at  each  house,  and  receiving  of  the 
occupiers  a  list  of  the  particulars  which  are  criterions 
of  the  tax ;  the  officer  to  have  power  to  administer  an 
oath. 

A  proper  penalty  to  be  annexed  to  misrepresent 
ation,  and  a  power  to  be  given  upon  cause  of  sus 
picion  testified  on  oath,  to  issue  a  warrant  to  inspect 
the  house  for  ascertaining  the  fact.  This  will  recon 
cile  the  idea  of  the  sanctity  of  the  castle  with  the 
security  of  the  revenue. 


NATIONAL  BANK 


317 


NATIONAL  BANK 


HAMILTON  TO  ROBERT  MORRIS,   1780  z 

SIR  : — The  present  conjuncture  is  by  all  allowed  to 
be  peculiarly  critical.  Every  man  of  reflection  em 
ploys  his  thoughts  about  the  remedies  proper  to  be 
applied  to  the  national  disorders;  and  every  one, 
from  a  partiality  to  his  own  ideas,  wishes  to  convey 
them  to  those  who  are  charged  with  the  manage 
ment  of  affairs.  The  channel  of  the  public  papers, 
commonly  made  use  of  for  the  purpose,  appears  to 
me  exceptionable  on  several  accounts.  It  not  only 

1  This  letter  was  written  while  Hamilton  was  still  serving  in  the 
Revolutionary  army.  The  struggle  for  independence  was  in  danger  of 
being  wrecked  by  financial  difficulties  and  Robert  Morris  had  just 
undertaken  those  labors  which,  by  his  skill  and  energy,  saved  the 
cause  of  the  Colonies.  Hamilton,  with  his  mind  running  on  questions 
of  government  and  finance,  and  satisfied  that  civil,  political,  and  finan 
cial  measures  were  really  more  essential  than  even  military  campaigns, 
desired  most  earnestly  to  help  Morris,  whom  he  greatly  liked  and  re 
spected.  This  letter  was  the  result;  a  very  extraordinary  perform 
ance  for  a  young  man  of  twenty-three,  whose  life  had  been  spent  in 
college  and  camp.  The  natural  genius  of  the  financier  and  statesman 
shine  out  strongly.  This  is  in  fact  the  first  of  the  arguments  which 
led  to  the  foundation  of  the  national  banking  system  of  the  United 
States.  The  others  follow.  Nothing  has  been  omitted  except  a  draft 
of  a  charter  for  the  Bank  of  New  York,  1786,  and  one  of  a  charter  for 
the  Merchants'  Bank  of  New  York,  1803,  which  throw  no  light  on 
Hamilton's  opinions  or  on  the  development  of  the  principles  which 
were  by  his  efforts,  embodied  in  legislation. 

319 


320  Alexander  Hamilton 

restrains  a  freedom  of  discussion,  from  the  extreme 
delicacy  of  the  subject,  but  the  discussion  itself 
increases  the  evil,  by  exposing  our  weak  sides  to 
the  popular  eye,  and  adding  false  terrors  to  those 
well-founded  apprehensions  which  our  situation 
authorizes. 

Instead  of  pursuing  this  method,  I  prefer  addressing 
myself  to  a  member  of  that  body,  in  whose  power 
alone  it  is,  by  well-digested  system,  to  extricate  us 
from  our  embarrassments.  I  have  pitched  upon  you, 
from  a  personal  knowledge  of  your  abilities  and  zeal. 
If  I  offer  anything  new  and  useful,  I  am  persuaded 
you  will  endeavor  to  turn  it  to  advantage.  If  the 
contrary  is  the  case,  I  am,  at  least,  doing  no  harm. 
I  shall  only  have  had  the  trouble  of  writing,  and 
you  of  reading,  a  few  useless  pages. 

The  object  of  principal  concern  is  the  state  of  our 
currency.  In  my  opinion,  all  our  speculations  on 
this  head  have  been  founded  in  error.  Most  people 
think  that  the  depreciation  might  have  been  avoided 
by  provident  arrangements  in  the  beginning,  without 
any  aid  from  abroad;  and  a  great  many  of  our  san 
guine  politicians,  till  very  lately,  imagined  the  money 
might  still  be  restored  by  expedients  within  ourselves. 
Hence  the  delay  in  attempting  to  procure  a  foreign 
loan. 

This  idea  proceeded  from  an  ignorance  of  the  real 
extent  of  our  resources.  The  war,  particularly  in 
the  first  periods,  required  exertions  beyond  our 
strength,  to  which  neither  our  population  nor  riches 
were  equal.  We  have  the  fullest  proof  of  this  in  the 
constant  thinness  of  our  armies,  the  impossibility,  at 


National  Bank  321 

this  time,  of  recruiting  them  otherwise  than  by  com 
pulsion,  the  scarcity  of  hands  in  husbandry  and  other 
occupations,  the  decrease  of  our  staple  commodities, 
and  the  difficulty  of  every  species  of  supply.  I  am 
aware  that  the  badness  of  the  money  has  its  influ 
ence;  but  it  was  originally  an  effect,  not  a  cause, 
though  it  now  partakes  of  the  nature  of  both.  A 
part  of  those  evils  would  appear  were  our  finances  in 
a  more  flourishing  condition.  We  experienced  them 
before  the  money  was  materially  depreciated ;  and 
they  contributed  to  its  depreciation.  The  want  of 
men  soon  obliged  the  public  to  pay  extravagant 
wages  for  them  in  every  department.  Agriculture 
languished  from  a  defect  of  hands.  The  mechanic 
arts  did  the  same.  The  price  of  every  kind  of  labor 
increased,  and  the  articles  of  foreign  commerce,  from 
the  interruption  it  received,  more  than  kept  pace 
with  other  things. 

The  relative  value  of  money  being  determined  by 
the  greater  or  less  portion  of  labor  and  commodities 
which  it  will  purchase;  whatever  these  gained  in 
price,  that  of  course  lost  in  value. 

The  public  expenditures,  from  the  dearness  of 
everything,  necessarily  became  immense ;  greater  in 
proportion  than  in  other  countries;  and  much  be 
yond  any  revenues  which  the  best  concreted  scheme 
of  finance  could  have  extracted  from  the  natural 
funds  of  the  State.  No  taxes,  which  the  people 
were  capable  of  bearing,  on  that  quantity  of  money 
which  is  deemed  a  proper  medium  for  this  country 
(had  it  been  gold  instead  of  paper),  would  have  been 
sufficient  for  the  current  exigencies  of  government. 


VOL.   III. — 21. 


322  Alexander  Hamilton 

The  most  opulent  states  of  Europe,  in  a  war  of  any 
duration,  are  commonly  obliged  to  have  recourse  to 
foreign  loans  or  subsidies.1  How,  then,  could  we 
expect  to  do  without  them,  and  not  augment  the 
quantity  of  our  artificial  wealth  beyond  those  bounds 
which  were  proper  to  preserve  its  credit?  The  idea 
was  chimerical. 

The  quantity  of  money  formerly  in  circulation 
among  us  is  estimated  at  about  thirty  millions  of 
dollars.  This  was  barely  sufficient  for  our  interior 
commerce.  Our  exterior  commerce  was  chiefly 
carried  on  by  barter.  We  sent  our  commodities 
abroad,  and  brought  back  others  in  return.  The 

1  France  owes  a  debt  of  near  two  hundred  million  of  pounds  sterling; 
of  which  about  twenty-eight  millions  is  due  to  governments  and  in 
dividuals  in  the  United  Provinces. 

England  owes  a  debt  not  much  short,  of  which  about  thirty  millions 
is  likewise  due  to  the  United  Provinces. 

The  United  Provinces,  themselves,  owe  a  debt  of  the  generality  of 
fifty  millions  sterling,  besides  the  particular  debts  of  each  province. 
Russia,  Prussia,  Denmark,  Sweden,  all  owe  money  to  the  United 
Provinces,  notwithstanding  the  assistance  of  their  mines.  These  gov 
ernments,  too,  are  patterns  of  economy.  Sweden  receives  a  constant 
supply  from  France.  The  House  of  Austria  is  also  to  be  included  in 
the  catalogue.  Spain  is  almost  the  only  considerable  European  power 
to  be  excepted ;  but  this  is  to  be  attributed  to  that  inexhaustible  fund 
of  treasure  which  she  possesses  in  the  mines  of  South  America. 

The  King  of  Prussia  is  one  of  those  potentates  the  least  in  debt  not 
withstanding  he  has  a  long  time  made  a  figure  in  Europe,  much  above 
what  the  comparative  strength  and  resources  of  his  kingdom  entitled 
him  to  expect.  This  his  superior  genius  has  effected.  By  a  wise  ad 
ministration,  he  maintains  an  army  of  one  hundred  and  fifty  thousand 
men,  nearly  equal  to  that  of  France,  with  one  third  of  its  people,  and 
less  than  a  third  of  its  riches.  This  he  does  by  judicious  arrangements, 
by  a  rigid  economy,  and  by  a  species  of  commerce,  which  is  carried  on, 
on  account  of  the  state.  There  are  several  public  manufactories,  from 
which  the  army  is  supplied,  and  by  the  help  of  which  the  money  paid 
out  with  one  hand  is  taken  in  by  the  other. 


National  Bank  323 

balance  of  the  principal  branch  was  against  us,  and 
the  little  specie  derived  from  others  was  transferred 
directly  to  the  payment  of  that  balance,  without 
passing  into  home  circulation.  It  would  have  been 
impracticable,  by  loans  and  taxes,  to  bring  such  a 
portion  of  the  forementioned  sum  into  the  public 
coffers  as  would  have  answered  the  purposes  of  the 
war ;  nor  could  it  have  spared  so  considerable  a  part, 
without  obstructing  the  operations  of  domestic  com 
merce.  Taxes  are  limited,  not  only  by  the  quantity 
of  wealth  in  a  state,  but  by  the  temper,  habits,  and 
genius  of  the  people ;  all  which,  in  this  country,  con 
spired  to  render  them  moderate;  and  as  to  loans, 
men  will  not  be  prevailed  upon  to  lend  money  to  the 
public  when  there  is  a  scarcity,  and  they  can  find  a 
more  profitable  way  of  employing  it  otherwise,  as 
was  our  case. 

The  ordinary  revenues  of  the  United  Provinces 
amount  to  about  twenty-five  millions  of  guilders ;  or 
two  millions  two  hundred  and  fifty  thousand  pounds 
sterling  per  annum.  This  is,  on  proportion  to  its 
territory  and  numbers,  the  richest  country  in  the 
world;  and  the  country  where  the  people  sustain 
the  heaviest  load  of  taxes.  Its  population  is  about 
equal  to  ours,  two  millions  of  souls.  The  burthens 
on  the  subject  are  so  great  that  it  is  by  some  held 
most  impracticable,  even  on  extraordinary  emergen-  - 
cies,  to  enlarge  the  revenues  by  new  impositions.  It 
is  maintained,  their  dependence,  in  these  cases,  must 
be  on  the  extraordinary  contributions  of  wealthy 
individuals ;  with  the  aid  of  which,  in  some  of  their 
wars,  they  have  raised  four  millions  sterling  a  year. 


324  Alexander  Hamilton 

In  a  country  possessed  of  so  vast  a  stock  of  wealth, 
where  taxes  are  carried  to  such  a  height,  and  where 
the  means  of  paying  them  so  infinitely  exceed  those 
in  our  power,  if  the  national  revenues  only  amount 
to  the  sum  I  have  stated,  how  inadequate  must  have 
been  the  product  of  any  taxes  we  could  have  levied, 
to  the  demands  of  the  service !  Loans,  for  the  reason 
before  hinted,  would  have  been  out  of  the  question; 
at  least,  they  would  have  been  so  trifling  as  to  be  an 
object  of  little  importance.  Suppose  we  should  have 
been  able  to  raise  a  million  sterling,  annually ;  a  sum 
that  probably  would  have  exceeded  our  ability ;  how 
unequal  would  this  have  been  to  our  wants ! '  No 
economy  could  have  made  it  bear  any  proportion, 
especially  if  we  recur  to  the  causes  already  enumer 
ated,  by  which  the  currency  depreciated  in  its  first 
stages. 

From  these  reasonings  it  results,  that  it  was  not  in 
the  power  of  Congress,  when  their  emissions  had 
arrived  at  the  thirty  millions  of  dollars,  to  put  a  stop 
to  them.2  They  were  obliged,  in  order  to  keep  up 
the  supplies,  to  go  on  creating  artificial  revenues  by 
new  emissions;  and  as  these  multiplied,  their  value 
declined.  The  progress  of  the  depreciation  might 
have  been  retarded,  but  it  could  not  have  been  pre 
vented.  It  was,  in  a  great  degree,  necessary. 


1  This  will  appear,  by  recurring  to  our  expenses  in  the  commence 
ment  of  the  war,  before  the  money  was  depreciated.  In  '75,  which 
was  only  three  fourths  of  a  year,  the  emissions  amounted  to  seven 
millions  of  dollars;  in  '76,  to  fourteen  millions.  The  war  did  not 
begin,  in  earnest,  till  '76. 

a  This  is  meant,  without  employing  the  assistance  of  a  foreign  loan, 
and  of  other  expedients  beside  borrowing  and  taxing. 


National  Bank  325 

There  was  but  one  remedy;  a  foreign  loan.  All 
other  expedients  should  rather  have  been  considered 
as  auxiliary.  Could  a  loan  have  been  obtained,  and 
judiciously  applied,  assisted  by  a  vigorous  system 
of  taxation,  we  might  have  avoided  that  excess  of 
emissions  which  has  ruined  the  paper.  The  credit 
of  such  a  fund  would  have  procured  loans  from  the 
moneyed  and  trading  men  within  ourselves ;  because 
it  might  have  been  so  directed,  as  to  have  been 
beneficial  to  them  in  their  commercial  transactions 
abroad.1 

The  necessity  for  a  foreign  loan  is  now  greater 
than  ever.  Nothing  else  will  retrieve  our  affairs. 

The  wheels  of  government,  without  it,  cannot 
much  longer  be  kept  in  motion.  Including  loan- 
office  certificates,  and  State  emissions,  we  have 
about  four  hundred  millions  of  dollars  in  circula- 
tion.  The  real  value  of  these  is  less  than  seven 
millions,  which  is  the  true  circulating  medium  of 
these  States :  for  though  the  price  of  specie  is 
and  the  rate  of  exchange  for  sterling  bills 
the  nominal  value  of  every  commodity  is  at  least 
sixty  to  one,  on  an  average.  All  the  reasonings 
against  the  possibility  of  raising  the  current  ex 
penses  on  the  foundation  of  thirty  millions,  apply 
to  our  present  situation  in  the  ratio  of  thirty  to 
seven ;  that  is,  it  is  as  thirty  to  seven  less  practic 
able  now  than  when  our  emissions  amounted  to 
only  thirty  millions.  Could  every  dollar  in  circula 
tion  be  brought  annually  into  the  Treasury,  which 
never  was  effected  in  any  country,  and  is  politically 

1  This  will  appear  from  the  plan  which  will  be  proposed. 


3 26  Alexander  Hamilton 

impossible,  the  revenue  would  not  be  equal  to  the 
yearly  expense. 

The  hope  of  appreciating  the  money,  by  taxes  and 
domestic  loans,  is  at  an  end.  As  fast  as  it  could  be 
received,  it  must  be  issued  in  the  daily  expenditures. 
The  momentary  interval  between  its  being  drawn 
out  of  circulation  and  returning  into  it,  would  pre 
vent  its  receiving  the  least  advantage. 

These  reasonings  may  appear  useless,  as  the  neces 
sity  of  a  foreign  loan  is  now  acknowledged,  and 
measures  are  taking  to  procure  it.  But  they  are 
intended  to  establish  good  principles;  the  want  of 
which  has  brought  us  to  the  desperate  crisis  we 
are  arrived  at,  and  may  still  betray  us  into  fatal 
mistakes. 

How  this  loan  is  to  be  employed  is  now  the  ques 
tion;  and  its  difficulty  equal  to  its  importance. 
Two  plans  have  been  proposed :  one,  to  purchase  at 
once,  in  specie  or  sterling  bills,  all  superfluous  paper; 
and  to  endeavor,  by  taxes,  loans,  and  economy,  to 
hinder  its  returning  into  circulation.  The  remain 
der,  it  is  supposed,  would  then  recover  its  value. 
This,  it  is  said,  will  reduce  our  public  debt  to  the 
sterling  cost  of  the  paper. 

Suppose  two  hundred  millions  were  to  be  pur 
chased,  and  the  rest  called  in  by  taxes.     At 
this  would  require  bills  to  the  amount  of  of 

dollars.  But  I  doubt  whether  four  times  this  sum 
would  be  sufficient.  The  moment  it  was  known 
such  purchases  were  to  be  made,  the  avarice  of  the 
speculators  would  begin  to  operate:  the  demand 
would  immediately  occasion  an  artificial  apprecia- 


National  Bank  327 

tion;  each  successive  million  would  cost  more  than 
the  preceding.  But  this  appreciation  would  be 
more  relative  to  the  purchasing  medium  than  to 
the  prices  of  commodities.  The  raising  the  value  of 
the  paper  relative  to  the  former,  would  depend  on  the 
combination  of  a  few  artful  individuals,  and  would 
be  easily  accomplished.  The  diminution  of  prices 
must  be  slow,  as  it  implies  a  change  in  the  senti 
ments  of  the  body  of  the  people  with  respect  to  the 
money.  A  sudden  revolution  in  the  general  rates 
of  all  the  necessaries  of  life  is  not  to  be  expected. 
The  prices  of  these,  as  they  have  reached  their 
present  summit  by  degrees,  must,  by  degrees,  revert 
to  their  former  station.  The  minds  of  the  people 
will  not  readily  admit  impressions  in  favor  of  the 
currency.  All  their  past  experience  has  given  a 
habit  of  diffidence;  and  the  epidemical  spirit  of 
extortion  will  maintain  a  violent  struggle  with  what 
ever  has  a  tendency  to  produce  a  fall  of  prices.  A 
permanent  reduction  of  the  quantity  of  circulating 
cash,  will  alone  gradually  effect  it.  But  this  will 
not  happen  on  the  present  plan. 

The  necessity  of  continuing  the  supplies  at  nearly 
the  same  rates  now  given  (which  would  be  the  case 
if  my  reasonings  are  true),  would  have  nearly  the 
same  effect  mentioned  with  respect  to  taxes  and 
domestic  loans.  The  money  would  return  into  cir 
culation  almost  as  fast  as  it  was  drawn  out;  and  at 
the  end  of  the  year  we  should  find  our  treasury  empty, 
our  foreign  loan  dissipated,  and  the  state  of  our 
finances  as  deplorable  as  ever.  At  a  moderate  cal 
culation,  we  should  have  spent  ten  or  twelve  millions 


328  Alexander  Hamilton 

of  real  dollars,  for  the  sole  purpose  of  carrying  on 
the  war  another  year.  It  would  be  much  better, 
instead  of  purchasing  up  the  paper  currency,  to  pur 
chase  the  supplies  out  of  our  specie  or  bills.  In  the 
first  instance,  the  public  would  suffer  a  direct  loss  of 
the  artificial  appreciation,  relative  to  the  purchasing 
medium ;  in  the  last,  it  would  buy  at  the  value  of  the 
commodities  in  specie  or  bills. 

A  great  source  of  error  in  disquisitions  of  this 
nature,  is  the  judging  of  events  by  abstract  calcula 
tions;  which,  though  geometrically  true,  are  false 
as  they  relate  to  the  concerns  of  beings  governed 
more  by  passion  and  prejudice  than  by  an  enlight 
ened  sense  of  their  interests.  A  degree  of  illusion 
mixes  itself  in  all  the  affairs  of  society.  The  opinion 
of  objects  has  more  influence  than  their  real  nature. 
The  quantity  of  money  in  circulation  is  certainly  a 
chief  cause  of  its  decline ;  but  we  find  it  is  depreciated 
more  than  five  times  as  much  as  it  ought  to  be  by 
this  rule.  The  excess  is  derived  from  opinion;  a 
want  of  confidence.  In  like  manner  we  deceive  our 
selves,  when  we  suppose  the  value  will  increase  in 
proportion  as  the  quantity  is  lessened.  Opinion  will 
operate  here  also;  and  a  thousand  circumstances 
may  promote  or  counteract  the  principle. 

The  other  plan  proposed  is  to  convert  the  loan 
into  merchandise,  and  import  it  on  public  account. 
This  plan  is  incomparably  better  than  the  former. 
Instead  of  losing  on  the  sale  of  its  specie  or  bills,  the 
public  would  gain  a  considerable  profit  on  the  com 
modities  imported.  The  loan  would  go  much  further 
this  way,  in  supplying  the  expenses  of  the  war;  and 


National  Bank  329 

a  large  stock  of  valuable  commodities,  useful  to  the 
army  and  to  the  country,  would  be  introduced. 
This  would  affect  the  prices  of  things  in  general,  and 
assist  the  currency.  But  the  arts  of  monopolizers 
would  prevent  its  having  so  extensive  and  durable 
an  influence  as  it  ought  to  have. 

A  great  impediment  to  the  success  of  this,  as  well 
as  the  former  scheme,  will  be  the  vast  sums  requisite 
for  the  current  expenses.  The  arguments  adduced 
in  the  former  case  are  applicable  here  also,  though 
not  with  equal  force.  The  necessity  the  public  will 
be  under  of  parting  with  its  stock  to  defray  the  daily 
demands,  will  give  designing  men  an  opportunity, 
by  combinations  not  to  purchase,  to  oblige  it  to  sell 
at  a  rate  below  the  real  value  of  money.  This  they 
may  the  more  easily  effect,  as  the  demand  for  foreign 
commodities  is  much  less  than  formerly,  on  account 
of  the  general  spirit  of  parsimony  which  has  ob 
tained  from  necessity,  and  the  manufactures  carried 
on  in  private  families  for  their  own  use.  The  great 
est  part  of  the  country  people  now  almost  entirely 
clothe  themselves. 

The  public  must  either  sell  very  cheap,  to  collect 
rapidly  the  superfluous  paper  in  hopes  of  raising  the 
value  of  the  remainder ;  or  it  must  sell  very  slow,  to 
preserve  the  due  proportion  between  the  articles  it 
has  for  sale  and  those  it  wants  to  buy.  By  pursuing 
the  first  method,  it  will  soon  exhaust  its  stock  at  a 
very  considerable  loss,  and  only  give  temporary 
relief  to  the  currency.  According  to  my  principle, 
though  it  sells  cheap,  it  must  still  buy  dear;  and, 
consequently,  the  money  collected  cannot  remain  in 


33°  Alexander  Hamilton 

the  treasury  long  enough  to  preserve  the  rise  in  its 
appreciated  state.  If  it  pursues  the  second  method, 
the  expenditures  will  be  equal  to  the  income;  and 
though  the  public  will  make  the  natural  profits  on 
its  goods,  as  it  will  lay  up  nothing,  it  will  do  nothing 
towards  the  appreciation.1 

The  farmers  have  the  game  in  their  own  hands, 
and  will  make  it  very  difficult  to  lower  the  prices  of 
their  commodities.  For  want  of  laborers,  there  is 
no  great  superfluity  of  the  most  essential  articles 
raised.  These  are  things  of  absolute  necessity,  and 
must  be  purchased,  as  well  by  the  other  classes  of 
society  as  by  the  public.  The  farmers,  on  the  con 
trary,  if  they  do  not  like  the  price,  are  not  obliged  to 
sell;  because  they  have  almost  every  necessary 
within  themselves, — salt,  and  one  or  two  more,  ex- 
cepted,  which  bear  a  small  proportion  to  what  is 

1  To  form  an  idea  of  the  effect  of  this  plan,  let  it  be  supposed  that 
the  goods  imported  amount  to  two  millions  of  pounds  sterling,  and 
that  these  sell  at  one  hundred  and  fifty  pounds  in  paper,  for  each 
pound  sterling.  The  whole  proceeds  will  be  eight  hundred  millions  of 
dollars;  to  these  add  two  hundred  millions,  raised  in  taxes.  There 
will  then  be  in  the  hands  of  the  public  one  thousand  millions  of  dollars; 
which,  at  sixty  to  one,  gives  sixteen  millions  six  hundred  and  sixty-six 
thousand  six  hundred  and  sixty-six  and  two  thirds  of  real  dollars. 
Take  the  year  '76  for  a  standard,  and  suppose  fourteen  millions  of 
dollars  to  be  the  proper  annual  expense  of  the  war,  which  is  only  two 
millions  six  hundred  and  sixty-six  thousand  six  hundred  and  sixty-six 
and  two  thirds  less  than  the  whole  amount  of  the  goods  and  taxes. 
At  this  rate,  the  plan  would  do  little  more  than  defray  the  expenses  of 
the  war  for  one  year.  But  this  calculation  is  not  exactly  true ;  because 
the  money  would  certainly  appreciate,  in  some  degree,  by  the  reduc 
tion  of  its  quantity;  yet,  as  this  reduction  would  not  last,  at  least  in 
the  same  extent,  to  preserve  the  appreciation,  and  as,  in  proportion 
to  the  appreciation,  the  price  of  goods  must  fall,  and  bring  less  money 
in,  it  is  difficult  to  say  whether  it  would  not  ultimately  come  to  the 
same  thing. 


National  Bank  331 

wanted  from  them,  and  which  they  can  obtain,  by 
barter,  for  other  articles  equally  indispensable. 
Heavy  taxes,  it  may  be  said,  will  oblige  them  to 
sell;  but  they  can  pay,  with  a  small  part  of  what 
they  have,  any  taxes  our  Legislatures  will  venture 
to  impose,  or  would  be  able  to  enforce. 

One  measure,  alone,  can  counterbalance  these 
advantages  of  the  farmers,  and  oblige  them  to  con 
tribute  their  proper  quota  to  the  support  of  govern 
ment  :  a  tax  in  kind. 

This  ought  instantly  to  begin  throughout  the 
States.  The  present  quantity  of  cash,  though  nom 
inally  enormous,  would,  in  reality,  be  found  incom 
petent  to  domestic  circulation,  were  it  not  that  a 
great  part  of  our  internal  commerce  is  carried  on  by 
barter.  For  this  reason,  it  is  impossible,  by  pecuniary 
taxes,  to  raise  a  sum  proportioned  to  the  wants  of 
the  State.  The  money  is  no  longer  a  general  re 
presentative  ;  and  when  it  ceases  to  be  so,  the  State 
ought  to  call  for  a  portion  of  the  thing  represented ; 
or,  in  other  words,  to  tax  in  kind.  This  will  greatly 
facilitate  whatever  plan  of  finance  is  adopted;  be 
cause  it  will  lessen  the  expenditures  in  cash,  and 
make  it  the  easier  to  retain  what  is  drawn  in. 

I  said  the  demand  for  foreign  goods  is  less  than  it 
formerly  was.  I  mean  there  is  not  a  demand  for  so 
large  a  quantity,  which  the  reasons  already  assigned 
clearly  demonstrate;  nor  are  the  exorbitant  rates 
now  given  any  objection  to  this  doctrine.  There  is 
an  absolute  scarcity  even  in  comparison  of  the 
present  consumption;  and,  of  course,  a  demand  for 
what  there  is.  But  should  an  importation  of  two 


33 2  Alexander  Hamilton 

millions  sterling  take  place,  the  market  would  be 
glutted;  and  there  would  be  no  way  of  keeping  up 
the  price,  but  by  making  very  slow  sales.  A  less 
quantity  would  stand  no  chance  of  calling  in  the 
money,  and  keeping  it  in  long  enough  to  effect  any 
thing  in  favor  of  its  credit. 

I  say  nothing  about  the  risk  of  importation.  I 
do  not  believe  we  could  obtain  a  convoy  sufficient  to 
justify  our  hazarding  it  without  the  precaution  of 
insurance.  But  with  this  expedient  we  are  safe, 
and  must  be  satisfied  with  smaller  profits  for  the 
sake  of  security. 

This  is  a  plan  not  altogether  to  be  rejected.  With 
prudent  management  it  might  enable  us  to  carry  on 
the  war  two  or  three  years  (which,  perhaps,  is  as 
long  as  it  may  last) ;  but  if  we  should  expect  more 
from  it,  the  restoration  of  the  currency,  we  should 
be  disappointed. 

The  only  plan  that  can  preserve  the  currency  is 
one  that  will  make  it  the  immediate  interest  of  the 
moneyed  men  to  co-operate  with  government  in  its 
support.  The  country  is  in  the  same  predicament 
in  which  France  was  previous  to  the  famous  Missis 
sippi  scheme,  projected  by  Mr.  Law.  Its  paper 
money,  like  ours,  had  dwindled  to  nothing;  and  no 
efforts  of  the  government  could  revive  it,  because 
the  people  had  lost  all  confidence  in  its  ability.  Mr. 
Law,  who  had  much  more  penetration  than  integrity, 
readily  perceived  that  no  plan  could  succeed  which 
did  not  unite  the  interest  and  credit  of  rich  indi 
viduals  with  those  of  the  state;  and  upon  this  he 
framed  the  idea  of  his  project,  which,  so  far,  agreed 


National  Bank  333 

in  principle  with  the  Bank  of  England.  The  founda 
tion  was  good,  but  the  superstructure  too  vast. 
The  proprietors  aimed  at  unlimited  wealth,  and  the 
government  itself  expected  too  much;  which  was 
the  cause  of  the  ultimate  miscarriage  of  the  scheme, 
and  of  all  the  mischiefs  that  befell  the  kingdom  in 
consequence. 

It  will  be  our  wisdom  to  select  what  is  good  in  this 
plan,  and  in  any  others  that  have  gone  before  us, 
avoiding  their  defects  and  excesses.  Something  on 
a  similar  principle  in  America  will  alone  accom 
plish  the  restoration  of  paper  credit,  and  establish 
a  permanent  fund  for  the  future  exigencies  of 
government. 

Article  I.  The  plan  I  would  propose  is  that  of  an 
American  bank,  instituted  by  authority  of  Congress 
for  ten  years,  under  the  denomination  of  The  Bank 
of  the  United  States. 

II.  A  foreign  loan  makes  a  necessary  part  of  the 
plan;  but  this  I  am  persuaded  we  can  obtain,  if  we 
pursue  the  proper  measures.     I  shall  suppose  it  to 
amount  to  two  millions  of  pounds  sterling.     This 
loan  is  to  be  thrown  into  the  bank  as  a  part  of  its 
stock. 

III.  A  subscription  to  be  opened  for  two  hundred 
millions  of  dollars ;   and  the  subscribers  erected  into 
a  company,  to  be  called  THE  COMPANY  OF  THE  BANK 
OF  THE  UNITED  STATES. 

IV.  The  government  to  guarantee  this  subscrip 
tion  money  to  the  proprietors,  at  the  rate  of  one  for 
twenty;  that  is,  to  engage,  at  the  dissolution  of  the 
bank,  to  make  good  to  them  the  sum  of  ten  millions 


334  Alexander  Hamilton 

of  dollars,  in  lieu  of  the  two  hundred  millions  sub 
scribed,  payable  in  Spanish  milled  dollars,  or  a  cur 
rency  bona  fide  equivalent  to  them. 

V.  The  taxes  raised  in  money  annually,  to  be 
thrown  into  stock.1 

VI.  All  the  remaining  paper  to  be  called  in  (at 
the  option  of  the  possessor),  and  bank-notes  issued 
in  lieu  of  them,  for  so  much  sterling,  payable  to  the 
bearer  in  three  months  from  the  date,  at  two  per 
cent,  per  annum  interest.     A  pound  sterling  to  be 
estimated   at   two   hundred  and  sixty-six  and  two 
thirds  of  the   present  dollar.2     The  interest  to  be 
punctually  paid  in  specie  at  the  end  of  the  three 
months,    when    it  shall   be   at   the  choice    of  the 
possessor  to   have  the    bank-notes  renewed,  or  to 
receive  the  sum  deposited  in  the  old  paper. 

VII.  All  the  money  issued  from  the  bank  to  be 
of  the  same  denomination,  and  on  the  same  terms.3 

VIII.  The  bank  to  furnish  Congress  with  an  an 
nual  loan  of  two  millions  sterling,  if  they  have  occa 
sion  for  it,  at  four  per  cent,  interest. 

IX.  The  whole  or  such  part  of  the  stock  as  is 
judged  necessary  to  be  employed  in  commerce,  in 
the  manner  and  on  the  terms  which  shall  be  agreed 

1  The  taxes  are  made  to  increase  every  year,  for  the  three  years, 
because  the  money  in  circulation  increases,  and,  consequently,    the 
people  can  afford  to  pay  more. 

2  This  is  sixty  paper  dollars  to  one  dollar  of  four  shillings  and  six 
pence  sterling,  which  is  the  real  value  of  the  money.     But  if  it  is  appre 
hended  that  this  may  meet  with  opposition,  let  the  valuation  of  the 
bank-notes  be  the  same  as  the  price  of  European  bills  of  exchange. 
Other  operations  must  be  regulated  accordingly. 

3  The  reason  of  this  is  to  preserve  the  idea  of  a  stock,  and  make  it 
seem  that  the  old  paper  is  still  in  existence.     But  there  is  danger,  not 
withstanding  the  reasons  to  the  contrary,  that  there  may  be  a  run 


National  Bank  335 

upon  from  time  to  time  between  the  company  and 
a  Board  of  Trade  to  be  appointed  by  Congress. 

X.  The  bank  to  issue  occasionally,  by  permission 
of  Congress,  such  sums  as  may  be  thought  safe  and 
expedient,  in  private  loans,  on  good  securities,  at 
six  per  cent,  interest. 

XL  The  government  to  share  half  the  whole 
stock  and  profits  of  the  bank. 

XII.  The  bank  to  be  managed  by  the  trustees  of 
the  company,  under  the  inspection  of  the  Board  of 
Trade,1  who  may  have  recourse  to  the  company's 
books  whenever  they  think  proper  to  examine  the 
state  of  its  affairs.  The  same  is  done  in  England  and 
in  other  countries  where  banks  are  established,  and 
is  a  privilege  which  the  government  has  a  right  to 

upon  the  bank,  from  particular  causes,  which  may  embarrass  it.  It 
is  not  probable  the  old  paper  will  be  entirely,  though  nearly,  called 
out  of  circulation ;  what  remains  will  appreciate ;  this  may  tempt  those 
who  have  bank-notes  to  demand  payment  on  the  terms  of  the  original 
deposit,  without  considering  that,  by  bringing  too  great  a  quantity 
again  into  circulation,  it  will  again  depreciate.  The  bank  may  be 
pushed  to  a  very  disagreeable  extremity  by  this  means.  I  do  not 
know  whether  it  may  not  be  advisable  to  confine  the  privilege  of  re 
payment  to  the  lenders  to  the  bank,  and  make  the  bills  bear  interest, 
payable  every  three  months,  without  making  the  principal  demandable. 
Much  may  be  said  for  and  against.  It  is  well  worth  consideration. 

1  This  board  ought  immediately  to  be  established  at  all  events. 
The  Royal  Council  of  Commerce,  in  France,  and  the  subordinate 
Chambers  in  each  province,  form  an  excellent  institution,  and  may,  in 
many  respects,  serve  as  a  model.  Congress  have  too  long  neglected  to 
organize  a  good  scheme  of  administration,  and  throw  public  business 
into  proper  executive  departments.  For  commerce  I  prefer  a  board, 
but  for  most  other  things,  single  men.  We  want  a  Minister  of  War,  a 
Minister  of  Foreign  Affairs,  a  Minister  of  Finance,  and  a  Minister  of 
Marine.  There  is  always  more  decision,  more  dispatch,  more  secrecy, 
more  responsibility,  where  single  men,  than  where  bodies,  are  con 
cerned.  By  a  plan  of  this  kind  we  should  blend  the  advantages  of  a 
monarchy  and  of  a  republic  in  a  happy  and  beneficial  union.  Men  will 


336  Alexander  Hamilton 

demand  for  its  own  security.    It  is  the  more  necessary 
in  this  case,  from  the  commercial  nature  of  the  bank. 
To  give  an  idea  of  the  advantages — 

[Here  a  part  of  the  manuscript  is  missing.] 

which,  having  all  the  operation  of  money,  and 
of  a  more  advantageous  kind  than  that  which  the 
lenders  have  parted  with,  will  have  all  the  efficacy  of 
a  payment.  It  is  for  this  reason  they  are  made  to 
bear  interest ;  and  there  can  be  no  doubt  that  every 
man  will  prefer  a  species  of  money  which  answers  all 
the  purposes  of  a  currency,  and  even  when  lying  idle, 
brings  in  a  profit  to  the  possessor.  The  same  con 
sideration  will  prevent  the  lenders  recalling  the  old 

only  devote  their  lives  and  attentions  to  the  mastering  a  profession,  on 
which  they  can  build  reputation  and  consequence  which  they  do  not 
share  with  others. 

If  this  plan  should  be  approved  Congress  ought  immediately  to  ap 
point  a  Minister  of  Finance  under  whatsoever  title  they  think  proper, 
and  charge  him  with  its  execution.  He  ought  to  be  a  man  of  ability 
to  comprehend  it  in  all  its  consequences;  and  of  eloquence,  to  make 
others  comprehend  and  relish  it.  He  ought,  beside,  to  have  some 
general  knowledge  of  the  science.  This  man  ought  immediately  to 
address  himself  to  some  of  the  most  sensible  moneyed  men,  and  en 
deavor  to  convince  them  of  the  utility  of  the  project.  These  must 
engage  others,  and  so  on,  till  a  sufficient  number  is  engaged. 

Then  Congress  must  establish  the  bank  and  set  it  agoing.  I  know 
of  no  man  that  has  better  pretensions  than  yourself;  and  I  shall  be 
very  happy  to  hear  that  Congress  have  said:  "Thou  art  the  man." 

I  had  like  to  have  omitted  one  remark,  which  is,  that  the  subscrip 
tion  money  may  be  guaranteed,  if  necessary,  at  ten  to  one,  as  a  greater 
inducement.  This  will  only  be  twenty  millions  of  dollars,  or  five 
millions  of  pounds  sterling;  a  cheap  bargain  to  get  rid  of  the  perplexi 
ties  we  labor  under,  and  convert  the  torrent  of  ideal  money  into  a 
moderate  but  sufficient  stream  to  supply  the  real  wants  of  the  State. 
Congress,  no  doubt,  would  be  able  to  borrow  enough  abroad  to  pay 
this  debt,  if  it  should  not  find  better  means  within  itself.  But  I  shall 
be  much  mistaken  if  the  proprietors  will  desire  to  be  repaid,  and  not 
prefer  continuing  the  loan  to  government  on  reasonable  terms. 


National  Bank  337 

paper  at  the  quarterly  payments ;  because  they  hold 
a  more  valuable  property  instead  of  it.  The  in 
terest  is  to  be  paid  in  specie,  as  a  further  temptation. 
for  which  a  small  sum  will  suffice.  The  denomina 
tion  of  the  money  is  altered ;  because  it  will  produce 
a  useful  illusion.  Mankind  are  much  led  by  sounds 
and  appearances;  and  the  currency  having  changed 
its  name  will  seem  to  have  changed  its  nature. 

The  bank  will  advance  bills  to  the  amount  of  two 
million  of  pounds  sterling  to  Congress ;  and,  in  addi 
tion  to  its  stock,  will  now  have  a  debt  due  it  of  this 
sum,  which  is  to  be  considered  as  so  much  gained. 

[Here  a  part  of  the  manuscript  is  missing.] 

Brought  over     .     ...     .     .    4:  •*     • .  :•      £7>°75,°o° 

To  be  deducted : 

Drawn  out  of  circulation,  by  the 

sale  of  goods  imported     .     .     .  £4,000,000 
By  governmental  taxes,  supposed 

to  be 1,000,000 — 5,000,000 

Remaining    in    circulation    the    fourth 
year •..».•     •     ^2»°75.°00 

This  will  be  less  than  the  preceding,  which  is  occa 
sioned  by  the.  million  supposed  to  be  drawn  in  by 
taxes. 

The  national  debt,  on  this  plan,  will  stand  thus, 
at  the  end  of  three  years : 

Foreign  loan .£2,000,000 

Domestic  loan,  at  two  millions  per  annum  .  6,000,000 
Interest  at  four  per  cent 320,000 

8,320,000 
Half  the  value  of  the  bank 7,900,000 

Balance  against  the  United  States     ....     £420,000 


VOL.  III.— 22. 


338  Alexander  Hamilton 

We  may,  therefore,  by  means  of  this  establish 
ment,  carry  on  the  war  three  years,  and  only  incur 
a  debt  of  four  hundred  and  twenty  thousand  pounds 
over  and  above  the  guaranty  of  the  subscription 
money;  which,  however,  is  not  to  be  paid  till  the 
end  of  ten  years. 

I  have  said,  in  one  place,  that  abstract  calcula 
tions,  in  questions  of  finance,  are  not  to  be  relied  on; 
and  as  the  complex  operations  of  trade  are  involved 
in  the  present  plan,  I  am,  myself,  diffident  of  those 
flattering  results  which  it  presents  at  every  step.  I 
am  aware  how  apt  the  imagination  is  to  be  heated 
in  projects  of  this  nature,  and  to  overlook  the  falla 
cies  which  often  lurk  in  first  principles.  But  when  I 
consider,  on  the  other  hand,  that  the  scheme  stands 
on  the  firm  footing  of  public  and  private  faith ;  that 
it  links  the  interest  of  the  State  in  an  intimate  con 
nection  with  those  of  the  rich  individuals  belonging 
to  it ;  that  it  turns  the  wealth  and  influence  of  both 
into  a  commercial  channel,  for  mutual  benefit,  which 
must  afford  advantages  not  to  be  estimated;  that 
there  is  a  defect  of  circulating  medium,  which  this 
plan  supplies,  by  a  sort  of  creative  power,  con 
verting  what  is  so  produced  into  a  real  and  effica 
cious  instrument  of  trade; — I  say,  when  I  consider 
these  things,  and  many  more  that  might  be  added, 
I  cannot  forbear  feeling  a  degree  of  confidence  in  the 
plan,  and,  at  least,  hoping  that  it  is  capable  of  being 
improved  into  something  that  will  give  relief  to  our 
finances. 

I  do  not  believe  that  the  advantages  will  be  so 
great  in  fact,  as  they  seem  to  be  in  speculation. 


National  Bank  339 

They  will  be  limited  by  the  means  of  commerce 
which  the  States  produce ;  and  these  may  not  be  so 
extensive  in  the  beginning  as  the  plan  supposes. 
Besides  this,  the  profits  of  the  commerce  will  not  be 
so  large,  in  proportion,  after  the  first  or  second  year, 
as  during  those  years ;  neither  will  it  be  possible  to 
increase  the  paper  credit  in  the  same  degree.  But 
the  Bank  of  England  is  a  striking  example,  how 
far  this  may  be  carried,  when  supported  by  pub 
lic  authority  and  private  influence.  On  the  other 
hand,  a  variety  of  secondary  expedients  may  be 
invented,  to  enlarge  the  advantages  of  the  bank. 
The  whole  system  of  annuities,  as  practised  in 
England,  may  be  ingrafted  upon  it,  with  such 
differences  as  are  proper  to  accommodate  it  to  our 
circumstances.  The  European  loan  may  also  be 
converted  into  a  European  bank,  the  interest  of 
which,  being  interwoven  with  the  American  bank, 
may  engage  rich  individuals  there  in  promoting  and 
extending  the  plan. 

Very  beneficial  contracts  may  be  made  between 
government  and  the  company,  for  supplying  the 
army,  by  which  money  may  be  saved  to  the  public, 
the  army  better  furnished,  and  the  profits  of  the 
bank  extended. 

I  have  confined  the  bank  to  the  space  of  ten  years, 
because  this  will  be  long  enough  to  judge  of  its  ad 
vantages  and  disadvantages ;  and  the  latter  may  be 
rectified  by  giving  it  a  new  form.  I  do  not  suppose 
it  will  ever  be  discontinued;  because  it  seems  to  be 
founded  on  principles  that  must  always  operate  well, 
and  make  it  the  interest,  both  of  government  and 


34°  Alexander  Hamilton 

the  company,  to  uphold  it.  But  I  suppose  the 
plan  capable  of  improvement,  which  experience  will 
suggest. 

I  give  one  half  of  the  whole  property  of  the  bank 
to  the  United  States ;  because  it  is  not  only  just  but 
desirable  to  both  parties.  The  United  States  con 
tribute  a  great  part  of  the  stock;  their  authority  is 
essential  to  the  existence  of  the  bank ;  their  credit  is 
pledged  for  its  support.  The  plan  would  ultimately 
fail,  if  the  terms  were  too  favorable  to  the  company, 
and  too  hard  upon  government.  It  might  be  en 
cumbered  with  a  debt  which  it  could  never  pay,  and 
be  obliged  to  take  refuge  in  bankruptcy.  The  share 
which  the  State  has  in  the  profits  will  induce  it  to 
grant  more  ample  privileges,  without  which  the 
trade  of  the  company  might  often  be  under  restric 
tions  injurious  to  its  success. 

It  is  not,  perhaps,  absolutely  necessary  that  the 
sum  subscribed  should  be  so  considerable  as  I  have 
stated  it,  though  the  larger  the  better.  It  is  only 
necessary  it  should  be  considerable  enough  to  en 
gage  a  sufficient  number  of  the  principal  moneyed 
men  in  the  scheme.  But  Congress  must  take  care 
to  proportion  the  advantages  they  give  and  receive. 

It  may  be  objected  that  this  plan  will  be  pre 
judicial  to  trade,  by  making  the  government  a  party 
with  a  trading  company;  which  may  be  a  tempta 
tion  to  arrogate  exclusive  privileges,  and  thereby 
fetter  that  spirit  of  enterprise  and  competition  on 
which  the  prosperity  of  commerce  depends.  But 
Congress  may  satisfy  the  jealousies  on  this  head,  by 
a  solemn  resolution  not  to  grant  exclusive  privileges, 


National  Bank  341 

which  alone  can  make  the  objection  valid.  Large 
trading  companies  must  be  beneficial  to  the  com 
merce  of  a  nation,  when  they  are  not  invested  with 
these,  because  they  furnish  a  capital  with  which 
the  most  extensive  enterprises  may  be  undertaken. 
There  is  no  doubt  the  establishment  proposed 
would  be  very  serviceable  at  this  juncture,  merely 
in  a  commercial  view;  for  private  adventurers  are 
not  a  match  for  the  numerous  obstacles  resulting 
from  the  present  posture  of  affairs. 

The  present  plan  is  the  product  of  some  reading  on 
the  subjects  of  commerce  and  finance,  and  of  occa 
sional  reflections  on  our  particular  situation;  but  a 
want  of  leisure  has  prevented  its  being  examined  in 
so  many  lights,  and  digested  so  materially,  as  its 
importance  requires.  If  the  outlines  are  thought 
worthy  of  attention,  and  any  difficulties  occur  which 
demand  explanation;  or  if  the  plan  be  approved, 
and  the  further  thoughts  of  the  writer  are  desired,  a 
letter  directed  to  James  Montague,  Esquire,  lodged 
in  the  post-office  at  Morristown,  will  be  a  safe 
channel  of  any  communications  you  may  think 
proper  to  make;  and  an  immediate  answer  will  be 
given.  Though  the  writer  has  reasons  which  make 
him  unwilling  to  be  known,  if  a  personal  conference 
with  him  should  be  thought  material,  he  will  en 
deavor  to  comply. 

You  will  consider  this  as  a  hasty  production,  and 
excuse  the  incorrectnesses  with  which  it  abounds. 
I  am,  Sir,  very  respectfully, 

Your  most  obedient  and  humble  servant. 


342  Alexander  Hamilton 

HAMILTON   TO    ROBERT   MORRIS 

April  30,  1781. 

SIR: 

I  was  among  the  first  who  were  convinced  that  an 
administration  by  single  men  was  essential  to  the 
proper  management  of  the  affairs  of  this  country.  I 
am  persuaded  now  it  is  the  only  resource  we  have  to 
extricate  ourselves  from  the  distresses  which  threaten 
the  subversion  of  our  cause.  It  is  palpable  that  the 
people  have  lost  all  confidence  in  our  public  councils ; 
and  it  is  a  fact,  of  which  I  dare  say  you  are  as  well 
apprised  as  myself,  that  our  friends  in  Europe  are  in 
the  same  disposition.  I  have  been  in  a  situation 
that  has  enabled  me  to  obtain  a  better  idea  of  this 
than  most  others;  and  I  venture  to  assert  that  the 
Court  of  France  will  never  give  half  the  succors  to 
this  country,  while  Congress  holds  the  reins  of  ad 
ministration  in  their  own  hands,  which  they  would 
grant,  if  these  were  entrusted  to  individuals  of  es 
tablished  reputation,  and  conspicuous  for  probity, 
abilities,  and  fortune. 

With  respect  to  ourselves,  there  is  so  universal  and 
rooted  a  diffidence  of  the  government,  that,  if  we 
could  be  assured  the  future  measures  of  Congress 
would  be  dictated  by  the  most  perfect  wisdom  and 
public  spirit,  there  would  be  still  a  necessity  for  a 
change  in  the  forms  of  our  administration,  to  give 
a  new  spring  and  current  to  the  passions  and  hopes 
of  the  people. 

To  me  it  appears  evident  that  an  executive  min 
istry,  composed  of  men  with  the  qualifications  I 
have  described,  would  speedily  restore  the  credit  of 


National  Bank  343 

government  abroad  and  at  home — would  induce  our 
allies  to  greater  exertions  in  our  behalf — would  in 
spire  confidence  in  moneyed  men  in  Europe,  as  well 
as  in  America,  to  lend  us  those  sums  of  which  it  may 
be  demonstrated  we  stand  in  need,  from  the  dis 
proportion  of  our  national  wealth  to  the  expenses 
of  the  war. 

I  hope,  sir,  you  will  not  consider  it  as  a  com 
pliment,  when  I  assure  you  that  I  heard,  with  the 
greatest  satisfaction,  of  your  nomination  to  the  de 
partment  of  finance.  In  a  letter  of  mine  last  sum 
mer  to  Mr.  Duane,  urging,  among  other  things,  the 
plan  of  an  executive  ministry,  I  mentioned  you  as 
the  person  who  ought  to  fill  that  department.  I 
know  of  no  other  in  America,  who  unites  so  many 
advantages;  and  of  course  every  impediment  to 
your  acceptance  is  to  me  a  subject  of  chagrin.  I 
flatter  myself  Congress  will  not  preclude  the  public 
from  your  services  by  an  obstinate  refusal  of  reason 
able  conditions;  and,  as  one  deeply  interested  in 
the  event,  I  am  happy  in  believing  you  will  not 
easily  be  discouraged  from  undertaking  an  office,  by 
which  you  may  render  America,  and  the  world,  no 
less  a  service  than  the  establishment  of  American 
independence!  T  is  by  introducing  order  into  our 
finances— by  restoring  public  credit — not  by  gain 
ing  battles,  that  we  are  finally  to  gain  our  object. 
'T  is  by  putting  ourselves  in  a  condition  to  con 
tinue  the  war — not  by  temporary,  violent,  and 
unnatural  efforts  to  bring  it  to  a  decisive  issue,  that 
we  shall,  in  reality,  bring  it  to  a  speedy  and  success 
ful  one.  In  the  frankness  of  truth  I  believe,  sir,  you 


344  Alexander  Hamilton 

are  the  man  best  capable  of  performing  this  great 
work. 

In  expectation  that  all  difficulties  will  be  removed, 
and  that  you  will  ultimately  act  on  terms  you  ap 
prove,  I  take  the  liberty  to  submit  to  you  some 
ideas  relative  to  the  objects  of  your  department.  I 
pretend  not  to  be  an  able  financier;  it  is  a  part  of 
administration  which  has  been  least  in  my  way,  and, 
of  course,  has  least  occupied  my  inquiries  and  re 
flections.  Neither  have  I  had  leisure  or  materials 
to  make  accurate  calculations.  I  have  been  obliged 
to  depend  on  memory  for  important  facts,  for  want 
of  the  authorities  from  which  they  are  drawn. 
With  all  these  disadvantages,  my  plan  must  neces 
sarily  be  crude  and  defective;  but  if  it  may  be  a 
basis  for  something  more  perfect,  or  if  it  contains 
any  hints  that  may  be  of  use  to  you,  the  trouble  I 
have  taken  myself,  or  may  give  you,  will  not  be  mis 
applied.  At  any  rate,  the  confidence  I  have  in  your 
judgment  assures  me  that  you  will  receive  with 
pleasure  communications  of  this  sort:  if  they  con 
tain  anything  useful,  they  will  promote  your  views 
and  the  public  benefit;  if  not,  the  only  evil  is  the 
trouble  of  reading  them;  and  the  best  informed  will 
frequently  derive  lights,  even  from  reveries  of  pro 
jectors  and  quacks.  There  is  scarcely  any  plan  so 
bad  as  not  to  have  something  good  in  it.  I  trust 
mine  to  your  candor  without  further  apology;  you 
will  at  least  do  justice  to  my  intention. 

The  first  step  towards  determining  what  ought  to 
be  done  in  the  finances  of  this  country,  is  to  estimate, 
in  the  best  manner  we  can,  its  capacity  for  revenue ; 


National  Bank  345 

and  the  proportion  between  what  it  is  able  to  afford, 
and  what  it  stands  in  need  of,  for  the  expenses  of  its 
civil  and  military  establishments.  There  occur  to 
me  two  ways  of  doing  this:  ist.  By  examining  what 
proportion  the  revenues  of  other  countries  have 
borne  to  their  stock  of  wealth,  and  applying  the 
rule  to  ourselves,  with  proper  allowance  for  the 
difference  of  circumstances.  -2d.  By  comparing 
the  result  of  this  rule  with  the  product  of  taxes  in 
those  States  which  have  been  the  most  in  earnest 
in  taxation.  The  reason  for  having  recourse  to  the 
first  method  is,  that  our  own  experience  of  our 
faculties  in  this  respect  has  not  been  sufficiently 
clear,  or  uniform,  to  admit  of  a  certain  conclusion: 
so  that  it  will  be  more  satisfactory  to  judge  of  them 
by  a  general  principle,  drawn  by  the  example  of 
other  nations,  compared  with  what  we  have  effected 
ourselves,  than  to  rely  entirely  upon  the  latter. 

The  nations  with  whose  wealth  and  revenues  we 
are  best  acquainted,  are  France,  Great  Britain,  and 
the  United  Provinces.  The  real  wealth  of  a  nation, 
consisting  in  its  labor  and  commodities,  is  to  be 
estimated  by  the  sign  of  that  wealth — its  circulating 
cash.  There  may  be  times  when,  from  particular 
accidents,  the  quantity  of  this  may  exceed  or  fall 
short  of  a  just  representative ;  but  it  will  turn  again 
to  a  proper  level,  and  in  the  general  course  of  things, 
maintain  itself  in  that  state. 

The  circulation  of  France  is  almost  wholly  carried 
on  in  the  precious  metals;  and  its  current  cash  is 
estimated  at  from  fifteen  to  sixteen  hundred  mil 
lions  of  livres.  The  net  revenue  of  the  kingdom, 


346  Alexander  Hamilton 

the  sum  which  actually  passes  into  the  public  coffers, 
is  somewhere  between  three  hundred  and  sixty  and 
four  hundred  millions,  about  one  fourth  of  the  whole 
of  its  currency.  An  estimate  of  the  wealth  of  this 
nation  is  liable  to  less  fallacy  than  of  that  of  the 
other  two,  as  it  makes  little  use  of  paper  credit, 
which  may  be  artificially  increased,  and  even  sup 
ported,  a  long  time  beyond  its  natural  bounds. 

It  is  supposed  that  the  gross  sum  extracted  from 
the  people  by  the  collectors  of  the  revenue  may  be 
one  third  more  than  that  which  goes  into  the  treas 
ury;  but  as  their  exactions  are  excessive,  and  fall 
too  heavy  on  particular  orders,  who  are  by  that 
means  reduced  to  indigence  and  misery,  it  is  to  be  in 
ferred,  that,  with  moderate  and  reasonable  expenses 
of  collection,  the  present  revenue  is  as  great  as  the 
kingdom  can  well  afford,  from  its  present  quantity 
of  wealth. 

The  circulating  cash  of  Great  Britain,  in  paper  and 
specie,  may  be  stated  at  about  forty  millions  of 
pounds  sterling.  Mr.  Hume  supposes  it  to  have 
been,  at  the  time  he  wrote  his  Essay  on  the  Balance 
of  Trade,  about  thirty  millions.  Other  writers  have 
carried  it  to  fifty,  and  it  is  probably  in  a  medium 
that  we  shall  find  the  truth.  I  do  not  include  in  this, 
the  whole  amount  of  bank-notes,  exchequer  bills, 
India  bonds,  etc.,  etc. ;  but  only  such  part  as  is  really 
employed  in  common  circulation,  and  performs  the 
offices  of  current  cash.  In  '75,  by  Dr.  Price's  state 
ment,  the  net  revenue  of  Great  Britain  was  ten  mil 
lions — that  is,  about  one  fourth  of  its  current  cash, 
as  in  France. 


National  Bank  347 

I  have  never  met  with  any  calculation  that  might 
be  depended  upon,  of  the  current  cash  of  the  Seven 
Provinces.  Almost  the  whole  of  their  coin,  as  well 
as  large  quantities  of  plate  and  bullion,  are  shut  up 
in  the  Bank  of  Amsterdam.  The  real  wealth  of  the 
bank  is  believed  to  be  about  fifteen  millions  sterling ; 
though,  upon  the  strength  of  this  fund,  it  has  a 
credit  almost  unlimited,  that  answers  all  the  pur 
poses  of  cash  in  trade.  As  the  Dutch,  by  their  prud 
ent  maxims,  have  commonly  the  rate  of  exchange 
throughout  Europe  in  their  favor,  and  a  considerable 
balance  of  trade,  the  use  of  paper  credit  (which,  in 
part,  also  depends  upon  the  particular  nature  of 
their  banks)  has  not  the  same  tendency  with  them, 
as  in  England,  to  banish  the  precious  metals.  We 
may  therefore  suppose  these  to  be  here,  as  in  France, 
the  true  sign  of  the  wealth  of  the  nation.  If  to  the 
fifteen  millions  in  bank,  we  add  two  millions  of  specie 
for  the  retail  circulation  and  various  transactions  of 
business,  we  shall,  I  imagine,  have  nearly  the  true 
stock  of  wealth  of  the  United  Provinces.  Their 
revenues  amount  to  something  more  than  four  mil 
lions,  and  bear  the  same  proportion  to  the  stock 
from  which  they  are  drawn,  as  those  of  France  and 
England.  I  confess,  however,  the  data,  in  their 
case,  are  not  sufficiently  ascertained  to  permit  us  to 
rely  equally  on  the  result.  From  these  three  ex 
amples  we  may  venture  to  deduce  this  general  rule, 
— that  the  proportion  of  revenue  which  a  nation  is 
capable  of  affording,  is  about  one  fourth  of  its  cir 
culating  cash,  so  far  as  this  is  a  just  representative 
of  its  labor  and  commodities. 


348  Alexander  Hamilton 

This  is  only  applicable  to  commercial  countries, 
because,  in  those  which  are  not  so,  the  circulating 
cash  is  not  an  adequate  sign.  A  great  part  of 
domestic  commerce  is  carried  on  by  barter;  and 
the  state  must  receive  a  part  of  its  dues  in  the  labor 
and  commodities  themselves.  The  proportion,  how 
ever,  of  the  revenues  of  such  a  state  to  the  aggregate 
of  its  labor  and  commodities,  ought  to  be  the  same 
as  in  the  case  of  trading  nations  to  their  circulating 
cash;  with  this  difference,  that  the  difficulty  of 
collection  and  transportation,  the  waste  and  em 
bezzlement  inseparable  from  this  mode  of  revenue, 
would  make  the  real  advantage  and  ultimate  gain 
to  the  state  infinitely  less  than  when  the  public  dues 
are  paid  in  cash. 

When  I  say  that  one  fourth  part  of  its  stock  of 
wealth  is  the  revenue  which  a  nation  is  capable  of 
affording  to  the  government,  I  must  be  understood 
in  a  qualified,  not  in  an  absolute,  sense.  It  would 
be  presumptuous  to  fix  a  precise  boundary  to  the  in 
genuity  of  financiers,  or  to  the  patience  of  the  people ; 
but  this  we  may  safely  say,  that  taxation  is  already 
carried,  in  the  nations  we  have  been  speaking  of, 
to  an  extent  which  does  not  admit  of  a  very  con 
siderable  increase  without  a  proportionable  increase 
of  industry.  This  suffices  for  a  standard  to  us; 
and  we  may  proceed  to  the  application. 

From  a  comparison  of  the  several  estimates  I  have 
seen,  of  the  quantity  of  current  cash  in  this  country 
previous  to  the  war  (specie  and  paper),  I  have  set 
tled  my  opinion  of  the  amount  at  thirty  millions  of 
dollars,  of  which  about  eight  might  have  been  in 


National  Bank  349 

specie:  one  fourth  of  this,  by  analogy,  was  at  that 
time  the  proper  revenue  of  these  States;  that  is, 
seven  and  a  half  millions  of  dollars. 

As  taxation,  however,  has,  by  slow  gradations, 
been  carried  to  an  extreme  in  those  countries 
which  I  have  chosen  as  examples,  that  would  not 
be,  but  in  a  course  of  time,  practicable  in  this,  where 
the  people  have  been  so  little  accustomed  to  taxes, 
it  may  be  doubted  whether  it  would  be  possible  to 
raise  the  same  proportion  of  revenue  here.  The  ob 
ject  of  the  war,  I  imagine,  would  supply  the  want 
of  habit,  and  reconcile  the  minds  of  the  people  to 
paying  to  the  utmost  of  their  abilities,  provided  the 
taxes  were  judiciously  imposed,  and  the  revenues 
wisely  administered.  Besides  this,  there  is  a  cir 
cumstance  in  our  favor,  which  puts  it  in  the  power 
of  government  to  raise  an  equal  proportion  of  re 
venue  without  burthening  the  lower  classes  of  the 
people  in  the  same  degree  as  in  Europe.  This  cir 
cumstance  is  the  much  greater  equality  of  fortunes, 
by  which  means  men,  in  this  country,  may  be  made 
to  contribute  to  the  public  exigencies  in  a  much 
juster  proportion  to  their  property;  and  this  is  in 
fact  the  case.  In  France  the  rich  have  gained  so 
entire  an  ascendant,  that  there  is  a  constant  sacri 
fice  of  the  ease  and  happiness  of  the  people  to  their 
avarice  and  luxury:  their  burthens  are  in  no  pro 
portion  to  those  of  the  middle  order,  and  still  less 
to  those  of  the  poor.  In  England  and  Holland  the 
case,  though  not  altogether,  is  in  a  great  measure 
the  same.  There  are  also  men  of  very  large  moneyed 
capitals,  which  were  either  formerly  exempt  from 


35°  Alexander  Hamilton 

taxes  by  being  in  the  public  funds;  or,  having  no 
visible  representative  for  taxation  to  operate  upon, 
enjoy  virtually  the  same  advantages.  But  if,  at  the 
commencement  of  the  war,  the  ability  of  these 
States  for  revenue  may  be  rated  at  seven  and  a  half 
millions  of  dollars,  when  the  amount  of  its  circulating 
cash  was  thirty  millions,  now  that  it  is  reduced  more 
than  one  half  in  real  value,  to  what  revenue  are  they 
to  be  supposed  equal  at  this  time?  I  should  judge 
about  one  fifth  less,  and  not  more. 

The  diminution  of  our  circulating  cash  is  prin 
cipally  artificial.  It  is  true,  our  foreign  commerce 
has  declined  by  the  war,  but  our  domestic  commerce 
has  increased.  I  know  of  no  good  reason  to  be 
lieve,  that  the  quantity  of  labor  and  commodities 
have  been  materially  diminished.  Our  exports  have 
lessened,  but  our  internal  consumption  has  aug 
mented.  The  men  employed  in  the  army,  and  in 
the  departments  connected  with  it,  consume  and 
waste  three  times  as  much  as  the  same  number  of 
men  in  civil  life.  A  number  of  husbandmen  have 
been  taken  from  their  ploughs  into  military  service; 
but  the  progress  of  our  natural  population  has,  in 
part,  supplied  their  place;  and  the  demands  of  the 
war  have  increased  individual  industry.  The  great 
influx  of  money  at  first  operated  upon  the  avarice 
of  the  people,  and,  for  a  long  time,  served  also  as 
a  stimulus  to  industry,  which  taxation  has  since 
kept  up  on  the  principle  of  necessity.  Notwith 
standing  the  demands  and  competitions  of  two 
armies  for  supplies,  we  see  that  corn,  which  is  the 
staple  of  these  Middle  States,  is  cheaper  than  for 


National  Bank  351 

some  years  before  the  war;  a  strong  argument  of 
plenty. 

We  may  infer  from  all  this,  that  we  stand  in  need 
now  of  nearly  the  same  quantity  of  medium  for  our 
circulation  as  before  the  war.  The  depreciation  of 
the  money  below  the  standard  is  to  be  attributed  to 
a  want  of  confidence  rather  than  to  a  decay  of  re 
sources.  We  find  the  people,  in  some  of  the  States, 
distressed  to  pay  their  taxes  for  want  of  money, 
with  ample  means  otherwise;  which  is  a  proof,  that 
our  current  cash  is  not  a  competent  representative 
of  the  labor  and  commodities  of  the  country.  An 
other  proof  of  the  same  nature  is,  that  particular 
vStates  which  have  found  no  small  difficulty  in  col 
lecting  their  pecuniary  taxes,  have  been  successful 
in  raising  contributions  to  a  large  amount  in  kind. 

This  country  never  having  been  a  country  of  man 
ufactures,  the  productions  of  the  soil  were,  as  they 
still  are,  the  principal  source  of  revenue.  The  in 
habitants  have  abridged  their  wants  of  foreign  ar 
ticles,  from  the  scarcity  of  them,  and  have,  in  part, 
supplied  their  place  by  home  manufactures,  which, 
being  chiefly  conducted  by  the  women,  take  nothing 
from  the  labor  appropriated  to  agriculture,  while  it 
enables  the  farmer  to  spare  a  larger  portion  of  his  in 
come  to  the  public. 

Whatever  diminution  our  means  of  revenue  may 
have  suffered,  must  be  accounted  for  on  the  decay 
of  foreign  trade,  and  on  the  loss  of  territory.  The 
imposts  on  trade  in  Great  Britain  amounted  to  about 
a  fourth  of  its  total  revenue.  The  proportion  must 
be  less  in  America.  But  suppose  it  to  be  the  same; 


35 2  Alexander  Hamilton 

suppose  our  external  commerce  to  be  reduced  one 
half,  which  I  believe  is  an  ample  allowance,  then 
one  eighth  should  be  deducted  from  our  revenue  on 
this  account ;  which  would  bring  it  down  to  six  mil 
lions  five  hundred  and  sixty- two  thousand  five  hun 
dred  dollars.  Allow  for  the  loss  of  Georgia  and 
South  Carolina  one  eighth  of  this  sum;  this  would 
reduce  the  income  of  the  remaining  States  to  five 
millions  seven  hundred  and  forty-two  thousand  one 
hundred  and  eighty-eight  and  four  eighths  dollars. 
But  as  the  allowance  in  both  cases  is  large,  the 
diminution  I  have  already  supposed,  of  one  fifth  of 
the  whole,  appears  to  be  nearest  the  truth;  which 
leaves  these  States  with  a  net  revenue  of  six  millions 
of  dollars. 

We  will  now  examine  how  far  this  rule  agrees  with 
experience,  and  with  what  has  already  been  effected 
in  these  States.  Massachusetts  may  serve  as  a  cri 
terion.  This  is  one  of  the  States  where  taxation 
has  been  carried  furthest.  Taxes  were  so  heavy  last 
year,  that  I  am  informed  there  were  real  marks 
of  distress  among  some  classes  of  the  people.  The 
Legislature,  in  their  late  address,  tell  us  that  they 
amounted  to  six  hundred  thousand  pounds  lawful; 
and  they  appear  to  have  thought  the  pressure  of 
them  too  great,  by  reducing  them  at  a  time  when 
they  are  obliged  to  have  recourse  to  a  large  loan  to 
answer  the  exigencies  of  the  current  year. 

The  taxes  they  specify,  which  seem  to  belong  to 
those  of  the  present  year,  with  the  addition  of  the 
bounties  for  raising  men,  and  the  beef  supply,  may 
be  estimated  at  near  five  hundred  thousand  pounds. 


National  Bank  353 

This  State  is  in  a  different  situation  from  any 
other.  Its  position  has  made  it  impossible  for  the 
enemy  to  intercept  its  trade;  while  that  of  all  the 
others  has  been  greatly  injured  or  totally  obstructed. 
It  has  become,  in  consequence,  the  mart  of  the 
States  northward  of  Pennsylvania;  and  its  com 
merce  has  enlarged  itself  much  beyond  its  former 
limits.  A  great  part  of  the  money  expended  for  the 
support  of  the  war  has  been  disbursed  there.  Con 
gress,  in  their  requisitions  for  money,  have  rated  the 
quota  of  Massachusetts  at '  of  the  whole ;  but  I 
believe  its  ability,  at  this  time,  is  in  the  proportion 
of  one  fifth.  I  found  this  estimation  on  an  impartial 
comparison  of  the  circumstances  of  the  several 
States. 

Admitting  the  proportion  to  be  just,  and  taking 
the  taxes  of  the  present  year  as  a  standard,  the 
gross  amount  of  our  collective  revenues  would  be 
two  millions  five  hundred  thousand  pounds  lawful; 
or  eight  millions  three  hundred  and  thirty-three 
thousand  three  hundred  and  thirty-three  and  one 
third  dollars.  The  expense  of  collection,  in  England, 
is  about  one  ninth  of  the  gross  amount ;  and  consider 
ing  that  our  revenue  is  to  be  raised  in  eleven  different 
governments,  each  having  a  complete  set  of  collectors 
of  its  own,  the  expense  of  collection,  with  us,  will  in 
all  probability  be  not  much  less  than  it  is  in  England. 
Supposing  it  to  be  the  same,  and  that  the  taxes  were 
to  prove  as  productive  as  their  normal  amount, 

1  This  blank  is  in  the  original,  and  as  the  quota  of  Massachusetts 
seems  to  have  varied  from  a  seventh  to  a  ninth  it  cannot  be  filled  pre- 
ciselv.  See  Journals  of  Continental  Congress. 

VOL.  III. — 23. 


354  Alexander  Hamilton 

our  net  revenue  would  then  be  seven  millions  four 
hundred  and  seven  thousand  four  hundred  and  eight 
and  one  half  dollars;  which  considerably  exceeds 
what  it  ought  to  be  by  my  first  calculation. 

But  there  are  considerations  which  may  induce 
us  to  make  large  deductions  from  this  sum.  When 
the  Legislature  tells  us,  that  the  taxes  of  last  year 
amounted  to  six  hundred  thousand  pounds,  it  also 
tells  us  that  there  was  a  part  of  them  still  to  be 
levied;  which,  among  other  things,  had  occasioned 
them  to  postpone  the  next  tax  to  a  future  session. 
Whatever  is  due  on  the  last  year  may  be  considered, 
in  effect,  as  an  anticipation  on  the  taxes  of  the 
present;  for  it  takes  off  so  much  from  the  ability  of 
the  people  to  pay  them.  The  chances  are,  that  the 
additional  impositions  projected  for  the  current 
year  will  not  be  raised  in  their  full  extent.  Taxes 
are  seldom  or  never  so  productive  as  their  estimated 
value;  and  in  a  case  like  this,  must  be  expected  to 
be  more  than  commonly  deficient. 

It  is  to  be  observed,  also,  that  the  last  year  was  a 
year  of  peculiar  exertion.  There  was  a  general  ex 
pectation  of  some  attempt,  in  conjunction  with  our 
allies,  decisive  of  the  war.  This  made  the  people 
strain  their  efforts  beyond  their  natural  abilities; 
and  yet  they  did  not  comply  with  the  demands  of 
the  Legislature. 

The  money  for  the  bounties  this  year,  which  I  have 
calculated  at  sixty  thousand  pounds,1  may,  in  like 

1  It  is  to  be  feared,  too,  that  this  sum  is  rated  too  high.  Hitherto 
we  have  not  four  hundred  men  from  that  State,  nor  very  promising 
accounts  of  those  which  may  be  expected. 


National  Bank  355 

manner,  be  regarded  as  an  extraordinary  and  special 
contribution,  which  the  people  may  be  willing  to 
submit  to,  over  and  above  what  they  could  probably 
afford  to  pay,  to  get  rid  of  the  insupportable  incon 
venience  of  temporary  enlistments. 

Reasonable  deductions  on  these  accounts  being 
made,  will  bring  the  two  calculations  to  a  pretty 
exact  agreement,  and  make  them  confirm  each  other. 
But  were  not  this  the  case,  I  should  be  inclined,  in 
preference,  to  trust  the  first,  as  being  founded  on  a 
basis  better  known  and  better  ascertained  by  exper 
ience.  I  believe,  however,  we  may  safely  conclude, 
from  both,  that  between  six  and  seven  millions  of 
dollars  is  the  proper  revenue  of  these  States,  after 
the  dismemberment  of  South  Carolina  and  Georgia. 

Having  formed  an  estimate  of  our  ability  for 
revenue,  the  next  thing  to  be  ascertained  is  the 
annual  expense  of  our  civil  and  military  establish 
ments.  With  tolerable  economy,  I  should  suppose 
two  millions  and  a  half  of  dollars  would  amply 
suffice  for  the  first,  including  the  particular  admin 
istration  of  each  State.  For  the  second,  judiciously 
managed,  eight  millions  of  dollars  would  be  ade 
quate,  calculating  for  an  army  of  twenty  thousand 
men,  which  are  as  many  as  we  shall  stand  in  need 
of,  or  be  able  T  to  raise.  Eleven  millions  of  dollars 

1  The  proportion  of  the  European  armies,  in  general,  to  the  national 
population,  is  calculated  at  one  to  a  hundred.  By  this  rule,  suppos 
ing  our  population  to  be  two  and  a  half  millions,  our  armies  ought  to 
consist  of  twenty-five  thousand  men ;  but  the  proportion  will  naturally 
be  less  in  this  country.  Our  population  is  more  diffused:  there  is  a 
greater  facility  of  procuring  subsistence,  fewer  poor  and  consequently 
fewer  of  that  class  of  men  whose  habits,  tempers,  and  circumstances 
lead  them  to  embrace  the  military  life,  than  in  any  other  country  in 


356  Alexander  Hamilton 

will  be  then  the  amount  of  the  annual  expenses  of 
these  States.  I  speak  on  a  supposition  that  a  sys 
tem  were  embraced,  well  adapted  to  rescuing  our 
affairs  from  the  chaos  in  which  they  are  now  in 
volved;  and  which,  while  it  continues,  must  baffle 
all  calculation. 

The  difference  between  our  revenues  and  ex 
penses,  on  the  preceding  scale,  will  be  from  four  to 
four  and  a  half  millions  of  dollars ;  which  deficiency 
must  of  course  be  supplied  by  credit,  foreign  or 
domestic,  or  both. 

With  regard  to  credit  abroad,  I  think  we  have 
little  chance  of  obtaining  a  sufficiency,  nearly  to 
answer  our  purpose.  France,  by  all  the  reforms 
she  can  make  in  her  interior  economy,  by  all  the 
means  she  can  procure  in  loans  and  lotteries,  in 

the  world.  Hence  it  is,  I  say,  twenty  thousand  men  are  as  many  as 
we  shall  be  able  to  raise.  Experience  justifies  this  opinion.  In  the 
first  paroxysms  of  enthusiasm  our  armies  were  larger.  I  believe,  at 
particular  periods,  we  have  had  more  than  thirty  thousand  men  in  the 
field:  but  our  force  has  every  year  diminished,  and  has  been  for  two 
years  past  below  the  standard  I  have  assigned.  Immense  efforts  have 
been  made  to  procure  men,  but  they  have  not  been  able  to  produce 
more.  This  shows  that  our  military  system  is  still  susceptible  of  great 
reforms  in  favor  of  economy;  but  we  dare  not  make  them,  because  we 
cannot  pay  the  army.  I  also  said,  twenty  thousand  men  would  be  as 
many  as  we  should  stand  in  need  of.  The  enemy  have  now  less  than 
this  number  within  the  States;  and  cannot,  in  the  future  progress  of 
the  war,  have  more. 

An  equal  force,  with  the  occasional  aid  of  the  militia,  will  confine 
them  within  one  or  two  capital  points;  and  this  will  be  their  defeat. 
But  we  have  a  further  resource  in  the  troops  of  our  allies.  We  must 
not  dream  of  decisive  enterprises,  unless  our  allies  will  assist  us  with 
twelve  or  fifteen  thousand  land  troops,  and  an  undisputed  maritime 
superiority.  Then,  with  the  aid  of  the  militia,  drawn  out  tor  a  few 
months,  we  may  undertake  and  succeed.  Our  true  policy,  in  the 
meantime,  is,  to  endeavor  to  form  a  solid  compact  force,  proportioned 
to  our  necessities. 


National  Bank  357 

addition  to  her  revenue,  can  do  little  more  than 
satisfy  her  own  wants.  The  death  of  the  Empress 
Queen,  and  the  notorious  hostility  of  the  Emperor, 
will  add  to  the  number  of  these.  She  will,  in  all 
probability,  be  obliged  to  pay  greater  attention  to 
her  army,  which  has  been  neglected,  for  several 
years  past,  to  apply  all  the  resources  of  the  kingdom 
to  the  improvement  of  the  navy.  Though  Russia 
and  Prussia,  by  the  last  advices,  seemed  disposed 
to  control  the  ill-humor  of  the  Emperor,  France  will 
hardly  think  it  prudent  to  leave  herself  in  a  defence 
less  condition,  relying  on  the  precarious  friendship 
and  momentary  interests  of  other  powers.  The  in 
crease  of  her  army  will  necessarily  increase  her  ex 
penses,  as  she  cannot,  in  the  present  state  of  things, 
retrench  any  thing  from  the  navy;  and  of  course 
she  will  have  less  money  to  spare  to  allies.  It  has 
been  observed,  that  France  has  hitherto  imposed 
none  of  the  additional  taxes  usual  in  time  of  war; 
by  doing  which,  it  is  imagined  she  would  have  it  in 
her  power,  not  only  to  supply  her  own  wants  better, 
but  to  contribute  largely  to  ours.  To  this  it  has 
been  answered,  with  great  appearance  of  reason, 
that  the  credit  of  the  financier  very  much  depends 
on  his  having  such  a  resource  in  reserve,  which, 
being  considered  as  a  means  he  may  command,  when 
necessary,  to  fulfil  his  engagements,  disposes  moneyed 
men  to  lend  to  him  with  the  greater  freedom  and  con 
fidence.  The  breaking  in  upon  that  resource,  there 
fore  (it  is  said),  would  injure  credit,  and  obstruct 
loans  in  a  degree  that  could  not  be  compensated  by 
the  direct  value  of  the  revenue  it  would  furnish. 


Alexander  Hamilton 

Upon  the  whole,  however,  from  a  variety  of  sift- 
ings  and  inquiries,  I  should  be  mistaken  if  France 
did  not  lend  this  country  eight  or  ten  millions  of 
livres  annually,  during  the  war ;  provided  its  finances 
were  once  put  upon  a  reasonable  footing:  but  this 
is  not  above  a  third  of  our  wants. 

I  find  no  reason  to  flatter  ourselves  that  we  have 
much  to  expect  either  from  the  ability  or  inclina 
tion  of  Spain.  Her  government  is  far  from  being 
so  rich  as  is  vulgarly  imagined.  The  mines  of  South 
America,  of  late  years,  have  been  less  liberal  of 
their  profits;  and,  for  fear  of  accidents,  but  a  small 
part  of  their  product,  since  the  war,  has  been  im 
ported  into  Europe.  The  extreme  indolence  of  the 
Spaniards,  and  their  neglect  of  agriculture,  manu 
factures,  and  trade,  make  them  tributary  to  their 
more  industrious  neighbors,  who  drain  them  of  their 
precious  metals  as  fast  as  they  arrive. 

But  if  they  were  heartily  disposed  to  do  it,  they 
might  still  afford  us  some  assistance.  Their  con 
duct  hitherto  has  manifested  no  such  disposition; 
it  has  been  as  cold  and  reserved  as  it  could  well  be. 
The  bills  drawn  upon  them  have  not  been  rejected, 
but  they  have  not  been  paid.  Their  permitting  the 
residence  of  a  British  emissary  among  them,  and 
the  countenance  they  give  him,  unprecedented  in  a 
state  of  war,  afford  just  room  for  a  distrust  of  their 
intentions,  though  it  may  be  nothing  more  than  a 
stroke  of  policy,  to  play  him  off  against  our  nego 
tiators,  and  make  us  bid  higher  for  their  friendship. 
Their  method  of  prosecuting  the  war  is  passive  to  a 
degree  that  can  scarcely  be  resolved  even  into  Span- 


National  Bank  359 

ish  supineness,  but  seems  to  have  a  more  corrupt 
original.  A  bigoted  prince,  governed  by  a  greedy 
confessor,  is  a  character  on  which  little  dependence 
can  be  placed. 

'T  is  not  on  Spain,  then,  that  we  are  to  build  our 
hopes  of  any  considerable  succors  in  money. 

The  Dutch  Government  has  of  long  standing 
mortgaged  all  its  revenues.  Taxation  has  been 
carried  to  a  length  that  admits  of  little  extension. 
'T  is  from  its  credit  with  its  own  citizens  that  it 
must  derive  the  means  of  making  war.  It  has 
every  thing  to  do.  Its  fleet  is  to  be  in  a  manner 
created  anew  and  its  land  forces  to  be  recruited, 
having  been  for  some  time  past  suffered  to  decline 
very  much.  It  will,  therefore,  stand  in  need  of  all 
its  credit  for  its  own  uses.  Of  course,  we  have 
nothing  to  expect  from  the  government  of  that 
country. 

The  individuals  will  not  have  confidence  enough 
in  our  public  councils  to  embark  any  considerable 
part  of  their  fortunes  with  us  on  the  ordinary  prin 
ciples  of  a  loan.  Stronger  inducements,  the  pro 
spect  of  commercial  advantages,  securities  differing 
from  the  mere  faith  of  the  United  States,  must  be 
held  out  to  tempt  them  to  engage  far  with  us.  The 
plan  I  am  going  to  propose  endeavors  to  conciliate 
these  objects. 

As  to  internal  loans,  on  which,  after  all,  we  must 
chiefly  depend,  there  are  two  things  that  operate 
against  them  to  any  large  amount:  the  want  of  a 
sufficient  number  of  men  with  sufficient  moneyed 
capitals  to  lend  the  sums  required,  and  the  want  of 


360  Alexander  Hamilton 

confidence  in  those  who  are  able  to  lend  to  make 
them  willing  to  part  with  their  money.  It  may  be 
added  that  they  can  employ  it  to  greater  advantage 
in  traffic  than  by  merely  lending  it  on  interest. 

To  surmount  these  obstacles,  and  give  individuals 
ability  and  inclination  to  lend  in  any  proportion  to 
the  wants  of  government,  a  plan  must  be  devised 
which,  by  incorporating  their  means  together  and 
uniting  them  with  those  of  the  public,  will,  on  the 
foundation  of  that  incorporation  and  union,  erect  a 
mass  of  credit  that  will  supply  the  defect  of  moneyed 
capital,  and  answer  all  the  purposes  of  cash;  a  plan 
which  will  offer  adventurers  immediate  advantages, 
analogous  to  those  they  receive  by  employing  their 
money  in  trade,  and  eventually  greater  advantages; 
a  plan  which  will  give  them  the  greatest  security 
the  nature  of  the  case  will  admit  for  what  they  lend ; 
and  which  will  not  only  advance  their  own  interest 
and  secure  the  independence  of  their  country,  but, 
in  its  progress,  have  the  most  beneficial  influence 
upon  its  future  commerce,  and  be  a  source  of  na 
tional  strength  and  wealth. 

I  mean  the  institution  of  a  NATIONAL  BANK. 
This  I  regard,  in  some  shape  or  other,  as  an  ex 
pedient  essential  to  our  safety  and  success;,  unless, 
by  a  happy  turn  of  European  affairs,  the  war  should 
speedily  terminate  in  a  manner  upon  which  it  would 
be  unwise  to  reckon.  There  is  no  other  that  can 
give  to  government  that  extensive  and  systematic 
credit  which  the  defect  of  our  revenues  makes  in 
dispensably  necessary  to  its  operations. 

The  longer  it  is  delayed  the  more  difficult  it  be- 


National  Bank  361 

comes.  Our  affairs  grow  every  day  more  relaxed 
and  more  involved ;  public  credit  hastens  to  a  more 
irretrievable  catastrophe;  the  means  for  executing 
the  plan  are  exhausted  in  partial  and  temporary 
efforts.  The  loan  now  making  in  Massachusetts 
would  have  gone  a  great  way  in  establishing  the 
funds  on  which  the  bank  must  stand. 

I  am  aware  of  all  the  objections  that  have  been 
made  to  public  banks;  and  that  they  are  not  with 
out  enlightened  and  respectable  opponents.  But 
all  that  has  been  said  against  them  only  tends  to 
prove  that,  like  all  other  good  things,  they  are  sub 
ject  to  abuse,  and,  when  abused,  become  pernicious. 
The  precious  metals,  by  similar  arguments,  may 
be  proven  to  be  injurious.  It  is  certain  that  the 
mines  of  South  America  have  had  great  influence  in 
banishing  industry  from  Spain,  and  sinking  it  in  real 
wealth  and  importance.  Great  power,  commerce,  and 
riches,  or,  in  other  words,  great  national  prosperity, 
may,  in  like  manner,  be  denominated  evils ;  for  they 
lead  to  insolence,  an  inordinate  ambition,  a  vicious 
luxury,  licentiousness  of  morals,  and  all  those  vices 
which  corrupt  government,  enslave  the  people,  and 
precipitate  the  ruin  of  a  nation.  But  no  wise  states 
man  will  reject  the  good  from  an  apprehension  of 
the  ill.  The  truth  is,  in  human  affairs  there  is  no 
good,  pure  and  unmixed;  every  advantage  has  two 
sides ;  and  wisdom  consists  in  availing  themselves  of 
the  good,  and  guarding  as  much  as  possible  against 
the  bad. 

The  tendency  of  a  national  bank  is  to  increase 
public  and  private  credit.  The  former  gives  power 


362  Alexander  Hamilton 

to  the  state,  for  the  protection  of  its  rights  and  in 
terests:  and  the  latter  facilitates  and  extends  the 
operations  of  commerce  among  individuals.  In 
dustry  is  increased,  commodities  are  multiplied, 
agriculture  and  manufactures  flourish:  and  herein 
consists  the  true  wealth  and  prosperity  of  a  state. 

Most  commercial  nations  have  found  it  necessary 
to  institute  banks;  and  they  have  proved  to  be  the 
happiest  engines  that  ever  were  invented  for  ad 
vancing  trade.  Venice,  Genoa,  Hamburg,  Holland, 
and  England  are  examples  of  their  utility.  They 
owe  their  riches,  commerce,  and  the  figure  they  have 
made  at  different  periods,  in  a  great  degree  to  this 
source.  Great  Britain  is  indebted  for  the  immense 
efforts  she  has  been  able  to  make,  in  so  many  illus 
trious  and  successful  wars,  essentially  to  that  vast 
fabric  of  credit  raised  on  this  foundation.  'T  is  by 
this  alone  she  now  menaces  our  independence. 

She  has,  indeed,  abused  the  advantage,  and  now 
stands  on  a  precipice.  Her  example  should  both 
persuade  and  warn  us.  'T  is  in  republics  where 
banks  are  most  easily  established  and  supported, 
and  where  they  are  least  liable  to  abuse.  Our 
situation  will  not  expose  us  to  frequent  wars;  and 
the  public  will  have  no  temptation  to  overstrain  its 
credit. 

In  my  opinion,  we  ought  not  to  hesitate,  because 
we  have  no  other  resource.  The  long  and  expensive 
wars  of  King  William  had  drained  England  of  its 
specie;  its  commerce  began  to  droop  for  want  of  a 
proper  medium:  its  taxes  were  unproductive,  and 
its  revenues  declined.  The  administration  wisely 


National  Bank  363 

had  recourse  to  the  institution  of  a  bank;  and  it 
relieved  the  national  difficulties.  We  are  in  the 
same,  and  still  greater,  want  of  a  sufficient  medium. 
We  have  little  specie ;  the  paper  we  have  is  of  small 
value,  and  rapidly  descending  to  less:  we  are  im 
mersed  in  a  war  for  our  existence  as  a  nation,  for  our 
liberty  and  happiness  as  a  people:  we  have  no 
revenues  and  no  credit.  A  bank,  if  practicable,  is 
the  only  thing  that  can  give  us  either  the  one  or  the 
other. 

Besides  these  great  and  cardinal  motives  to  such 
an  institution,  and  the  advantages  we  should  enjoy 
from  it,  in  common  with  other  nations,  our  situa 
tion,  relatively  to  Europe  and  to  the  West  Indies, 
would  give  us  some  peculiar  advantages. 

Nothing  is  more  common  than  for  men  to  pass 
from  the  abuse  of  a  good  thing,  to  the  disuse  of  it. 
Some  persons,  disgusted  by  the  depreciation  of 
the  money,  are  chimerical  enough  to  imagine  it 
would  be  beneficial  to  abolish  all  paper  credit,  anni 
hilate  the  whole  of  what  is  now  in  circulation,  and 
depend  altogether  upon  our  specie,  both  for  com 
merce  and  finance.  This  scheme  is  altogether 
visionary,  and  in  the  attempt  would  be  fatal.  We 
have  not  a  competent  stock  of  specie  in  this  country, 
either  to  answer  the  purposes  of  circulation  in  trade, 
or  to-  serve  as  a  basis  for  revenue.  The  whole 
amount  of  what  we  have,  I  am  persuaded,  does  not 
exceed  six  millions  of  dollars,  one  fifth  of  the  cir 
culating  medium  before  the  war.  To  suppose  this 
would  be  sufficient  for  the  operations  of  commerce, 
would  be  to  suppose  that  our  domestic  and  foreign 


364  Alexander  Hamilton 

commerce  were  both  reduced  four  fifths:  a  suppos 
ition  that  carries  absurdity  on  the  face  of  it.  It 
follows  that  if  our  paper  money  were  destroyed,  a 
great  part  of  the  transactions  of  traffic  must  be 
carried  on  by  barter;  a  mode  inconvenient,  partial, 
confined,  destructive  both  of  commerce  and  in 
dustry.  With  the  addition  of  the  paper  we  now 
have,  this  evil  exists  in  too  great  a  degree. 

With  respect  to  revenue,  could  the  whole  of  our 
specie  be  drawn  into  the  public  treasury  annually, 
we  have  seen  that  it  would  be  little  more  than  one 
half  of  our  annual  expense.  But  this  would  be 
impracticable;  it  has  never  been  effected  in  any 
country.  Where  the  numerary  of  a  country  is  a 
sufficient  representative,  there  is  only  a  certain  pro 
portion  of  it  that  can  be  drawn  out  of  daily  circula 
tion;  because,  without  the  necessary  quantity  of 
cash,  a  stagnation  of  business  would  ensue.  How 
small,  then,  would  be  the  proportion  of  the  six  mill 
ions  (in  itself  so  unequal  a  representative)  which 
the  public  would  be  able  to  extract  in  revenue.  It 
must  either  have  little  or  no  revenue,  or  it  must  re 
ceive  its  dues  in  kind;  on  the  inefficacy  and  incon 
veniences  of  which  mode,  I  have  already  remarked. 
The  necessity  for  it,  in  part,  unhappily  now  has 
place,  for  the  cause  assigned,  a  deficiency  of  current 
cash:  but  were  we  to  establish  it  as  our  principal 
dependence,  it  would  be  impossible  to  contrive  a 
mode  less  productive  to  the  public,  more  contrary 
to  the  habits  and  inclinations  of  the  people,  or  more 
baneful  to  industry. 

But  waiving  the  objections  on  this  head,  there 


National  Bank  365 

would  still  remain  a  balance  of  four  millions  of  dol 
lars  more  than  these  States  can  furnish  in  revenue, 
which  must  be  provided  for  the  yearly  expense  of 
the  war.  How  is  this  to  be  procured  without  a 
paper  credit,  to  supply  the  deficiency  of  specie,  and 
enable  the  moneyed  men  to  lend?  This  question,  I 
apprehend,  will  be  of  no  easy  solution. 

In  the  present  system  of  things,  the  health  of  a 
State,  particularly  a  commercial  one,  depends  on  a 
due  quantity  and  regular  circulation  of  cash,  as 
much  as  the  health  of  an  animal  body  depends  upon 
the  due  quantity  and  regular  circulation  of  the  blood. 
There  are  indisputable  indications  that  we  have  not 
a  sufficient  medium;  and  what  we  have  is  in  con 
tinual  fluctuation.  The  only  cure  to  our  public  dis 
orders,  is  to  fix  the  value  of  the  currency  we  now 
have,  and  increase  it  to  a  proper  standard,  in  a 
species  that  will  have  the  requisite  stability. 

The  error  of  those  who  would  explode  paper 
money  altogether,  originates  in  not  making  proper 
distinctions.  Our  paper  was,  in  its  nature,  liable 
to  depreciation,  because  it  had  no  funds  for  its  sup 
port,  and  was  not  upheld  by  private  credit.  The 
emissions  under  the  resolution  of  March,  '80,  have 
partly  the  former  advantage,  but  are  destitute  of 
the  latter,  which  is  equally  essential.  No  paper 
credit  can  be  substantial,  or  durable,  which  has  no 
funds,  and  which  does  not  unite,  immediately,  the 
interest  and  influence  of  the  moneyed  men,  in  its 
establishment  and  preservation.  A  credit  begun 
on  this  basis,  will,  in  process  of  time,  greatly  exceed 
its  funds:  but  this  requires  time  and  a  well-settled 


366  Alexander  Hamilton 

opinion  in  its  favor.  'T  is  in  a  national  bank,  alone, 
that  we  can  find  the  ingredients  to  constitute  a 
wholesome,  solid,  and  beneficial  credit. 

I  am  aware  that,  in  the  present  temper  of  men's 
minds,  it  will  be  no  easy  task  to  inspire  a  relish  for 
a  project  of  this  kind:  but  much  will  depend  on  the 
address  and  personal  credit  of  the  proposer.  In 
your  hands  I  should  not  despair :  and  I  should  have 
the  greater  hopes  for  what  I  am  informed  appeared 
to  be  the  disposition,  at  the  promulgation  of  the 
plan  for  a  loan  in  Massachusetts.  The  men  of  pro 
perty  in  America  are  enlightened  about  their  own 
interest,  and  would  easily  be  brought  to  see  the  ad 
vantages  of  a  good  plan.  They  ought  not  to  be 
discouraged  at  what  has  happened  heretofore,  when 
they  behold  the  administration  of  our  finances  put 
into  a  better  channel.  The  violations  of  public  en 
gagements,  hitherto,  have  proceeded  more  from  a 
necessity  produced  by  ignorance  and  mismanage 
ment,  than  from  levity  or  a  disregard  to  the  obliga 
tions  of  good  faith. 

Should  the  success,  in  the  first  instance,  not  be  as 
complete  as  the  extent  of  the  plan  requires,  this 
should  not  hinder  its  being  undertaken.  It  is  of 
the  nature  of  a  bank,  wisely  instituted,  and  wisely 
administered,  to  extend  itself,  and,  from  small  be 
ginnings,  grow  to  a  magnitude  that  could  not  have 
been  foreseen. 

The  plan  I  propose  requires  a  stock  of  three  mil 
lions  of  pounds,  lawful  money;  but  if  one  half  the 
sum  could  be  obtained,  I  should  entertain  no  doubt 
of  its  full  success.  It  now  remains  to  submit  my 


National  Bank  367 

plan,  which  I  rather  offer  as  an  outline,  than  as  a 
finished  plan.  It  contains,  however,  the  general 
principles.  To  each  article  I  shall  affix  an  explana 
tory  remark. 

ART.  I.  A  bank  to  be  erected  with  a  stock  of  three 
millions  of  pounds,  lawful  money,  at  the  rate  of  six 
shillings  to  a  dollar,  divided  into  thirty  thousand 
shares.  This  stock  to  be  exempted  from  all  public 
taxes  and  impositions  whatsoever. 

REMARK  i.  By  the  second  Article,  a  part  of  the  stock 
is  to  be  in  landed  security;  by  this,  the  whole  is  to  be 
exempted  from  taxes.  Here  will  be  a  considerable  saving 
to  the  proprietor,  which  is  to  be  estimated  among  the 
clear  profits  of  the  bank.  This  will  indeed  be  a  small 
reduction  of  the  public  revenue;  but  the  loss  will  be  of 
little  consequence,  compared  with  the  advantages  to  be 
derived  from  the  bank. 

ART.  II.  A  subscription  to  be  opened  for  the 
amount  of  the  stock.  A  subscriber  of  from  one 
share  to  five,  to  advance  the  whole  in  specie.  A 
subscriber  of  six  shares  to  fifteen,  to  advance  one 
half  in  specie,  the  other  half  in  good  landed  security. 
A  subscriber  of  sixteen  shares,  and  upwards,  to  ad 
vance  two  sixths  in  specie,  one  sixth  in  bills  of  secur 
ities  on  good  European  funds,  and  three  sixths  in 
good  landed  security.  In  either  case  of  specie,  plate 
or  bullion,  at  a  given  value,  proportioned  to  its 
quality,  may  be  substituted;  and  in  either  case  of 
landed  security,  specie,  good  bills,  or  securities  on 
European  funds,  to  be  admissible  in  their  stead.1 

1  The  possibility  of  making  up  so  large  a  proportion  of  specie  will 
depend  on  foreign  assistance.  It  could  hardly  be  hoped  to  effect  it 


368  Alexander  Hamilton 

REMARK  2.  By  admitting  landed  security  as  a  part  of 
the  bank  stock,  while  we  establish  solid  funds  for  the 
money  emitted,  we  at  the  same  time  supply  the  defect  of 
specie,  and  we  give  a  strong  inducement  to  moneyed  men 
to  advance  their  money;  because,  not  only  the  money 
actually  deposited  is  to  be  employed  for  their  benefit, 
but,  on  the  credit  of  their  landed  security,  by  the  seventh 
Article,  may  be  raised  an  equal  amount  in  cash,  to  be 
also  employed  for  their  benefit;  by  which  artifice  they 
have  the  use  of  their  land  (exempted,  too,  from  taxes), 
and  the  use  of  the  value  of  it  in  a  representative  cash. 
In  this  consists  a  capital  advantage  of  the  bank  to  the 
proprietors.  A,  for  instance,  advances  six  hundred  pounds 
in  specie,  and  as  much  more  in  landed  security.  By  the 
establishment  he  may  draw  bank-notes  for  the  whole  of 
his  stock,  that  is,  for  twelve  hundred  pounds,  when  he 
only  advances  half  the  sum  in  money.  These  bank-notes 
operating  as  cash,  his  land  (continuing  as  we  observed 
above,  in  his  own  use,  with  the  privilege  besides  of  an 
exemption  from  taxes)  is  converted  into  cash;  which  he 
may  employ  in  loans,  in  profitable  contracts,  in  beneficial 
purchases,  in  discounting  bills  of  exchange,  and  in  the 
other  methods  permitted  in  the  subsequent  Articles. 
Besides  all  this,  when  the  bank-notes  have  once  acquired 
a  fixed  credit,  he  is  not  obliged  to  keep  his  six  hundred 
pounds,  deposited  in  specie,  idle;  he  may  lend  or  other 
wise  improve,  a  part  of  that  also.  These  advantages  will 
not  exist  in  their  full  extent  at  first,  but  they  will  soon 
succeed  each  other. 

within  ourselves,  if,  as  I  suppose,  there  are  not  more  than  six  millions 
of  dollars  in  these  States.  It  is  true,  plate  is  admitted;  but  it  is 
uncertain  how  far  this  may  prove  a  resource.  It  were  to  be  wished 
the  proportion  of  specie  might  be  as  large  as  possible;  but,  perhaps, 
for  fear  of  a  failure,  it  may  be  advisable  to  alter  the  above  propor 
tions,  so  as  to  have,  upon  the  whole,  about  one  third  in  specie,  and 
two  thirds  in  European  funds  and  landed  security. 


National  Bank  369 

ART.  III.  The  bank  to  be  erected  into  a  legal  cor 
poration;  to  have  all  the  powers  and  immunities 
requisite  to  its  security,  to  the  recovery  of  its  debts, 
and  to  the  disposal  of  its  property. 

REMARK  3.  This  Article  needs  no  illustration. 

ART.  IV.  The  stock  of  the  bank  not  to  be  liable 
to  any  attachment  or  seizure  whatsoever;  but,  on 
refusal  of  payment,  the  holders  of  bank-notes,  or 
bonds,  may  enter  suit  against  any  member,  or  mem 
bers,  of  the  corporation;  and,  as  far  as  their  re 
spective  shares  in  the  bank  extend,  recover  the  debt, 
with  cost  and  damages,  out  of  their  private  property. 

REMARK  4.  The  first  part  of  this  regulation  is  necessary 
to  engage  foreigners  to  trust  their  property  in  the  bank ; 
the  latter  part  to  give  an  idea  of  security  to  the  holders 
of  bank-notes. 

ART.  V.  The  United  States,  or  any  particular 
States,  or  foreigners,  may  become  subscribers  to  the 
bank,  and  participate  in  its  profits,  for  any  sums  not 
exceeding  the  whole  half  the  stock. 

REMARK  5.  This  will  link  the  interests  of  the  public 
more  intimately  with  the  bank,  and  be  an  easy  method 
of  acquiring  revenue.  It  will  also  facilitate  the  making 
up  its  stock  by  the  loans  which  Congress  may  obtain 
abroad ;  without  which  it  would  be  more  difficult  to  raise 
so  large  a  sum.  It  is  essential  the  stock  should  be  large, 
because,  in  proportion  to  it,  will  be  the  credit  of  the  bank, 
and  of  course  its  ability  to  lend  and  enlarge  its  paper 
emissions.  The  admission  of  foreigners  will  also  assist 
the  completing  the  stock ;  and  it  is  probable  many  may 


VOL.  III. — 24. 


37°  Alexander  Hamilton 

be  induced  to  enter  into  the  plan,  especially  after  it  has 
made  some  progress  among  ourselves,  and  obtained  a 
degree  of  consistency. 

The  sum  is  limited  to  one  half  the  stock,  because  it  is 
of  primary  importance  that  the  moneyed  men  among 
ourselves  should  be  deeply  interested  in  the  plan. 

ART.  VI.  The  United  States,  collectively  and 
particularly,  to  become  responsible  for  all  the  trans 
actions  of  the  bank,  conjointly  with  the  private 
proprietors. 

REMARK  6.  This  mode  of  pledging  the  public  faith 
makes  it  as  difficult  to  be  infringed  as  could  possibly  be 
devised.  In  our  situation  it  is  expedient  to  offer  every 
appearance  of  security.  Foreigners  are  more  firmly  per 
suaded  of  the  establishment  of  our  independence  than  of 
the  continuance  of  our  union;  and  will,  therefore,  have 
more  confidence  in  the  States  bound  separately  than  col 
lectively.  Individuals  among  ourselves  will  be  influ 
enced  by  similar  considerations. 

ART.  VII.  The  bank  to  issue  notes  payable  at 
sight  in  pounds,  shillings,  and  pence,  lawful;  all  of 
twenty  shillings,  and  under,  to  bear  no  interest ;  all 
above,  to  bear  an  interest  not  exceeding  four  per 
cent.  The  notes  to  be  of  so  many  denominations  as 
may  be  judged  convenient  for  circulation,  and  of 
two  kinds;  one  payable  only  in  America,  the  other 
payable  either  in  America  or  in  any  part  of  Europe 
where  the  bank  may  have  funds.  The  aggregate  of 
these  notes  never  to  exceed  the  bank  stock. 

REMARK  7.  The  reason  of  having  them  payable  at 
sight  is  to  inspire  the  greater  confidence  and  give  them  a 


National  Bank  371 

readier  currency;  nor  do  I  apprehend  there  would  be 
any  danger  from  it.  In  the  beginning  some  may  be  car 
ried  to  the  bank  for  payment,  but  finding  they  are  punc 
tually  discharged,  the  applications  will  cease.  The  notes 
are  payable  in  pounds,  shillings,  and  pence,  rather  than 
in  dollars,  to  produce  an  illusion  in  the  minds  of  the  people 
favorable  to  the  new  paper;  or  rather  to  prevent  their 
transferring  to  that  their  prejudices  against  the  old. 
Paper  credit  depends  much  on  opinion,  and  opinion  is 
often  guided  by  outside  appearances.  A  circumstance 
trivial  as  this  may  seem,  might  have  no  small  influence 
on  the  popular  imagination.  And  if  twenty  shillings,  and 
under,  are  without  interest,  because  such  small  sums  will 
be  diffused  in  the  lesser  transactions  of  daily  circulation, 
there  will  be  less  probability  of  their  being  carried  to  the 
bank  for  payment. 

The  interest  on  the  larger  notes  is  calculated  to  give 
them  a  preference  to  specie,  and  prevent  a  run  upon  the 
bank.  The  notes,  however,  must  be  introduced  by  de 
grees,  so  as  not  to  inundate  the  public  at  once.  Those 
bearing  no  interest  ought  not  to  be  multiplied  too  much 
at  first ;  but  as  the  interest  is  an  abridgment  of  the  profits 
of  the  bank,  after  the  notes  have  gained  an  unequivocal 
credit,  it  will  be  advantageous  to  issue  a  large  proportion 
of  the  smaller  ones.  At  first,  the  interest  had  best  be  at 
four  per  cent.,  to  operate  the  more  effectually  as  a  motive ; 
afterward,  on  the  new  notes,  it  may  be  gradually  dimin 
ished  ;  but  it  will  always  be  expedient  to  let  them  bear 
an  interest  not  less  than  two  per  cent. 

The  making  some  of  the  notes  payable  in  Europe  as 
well  as  in  America,  is  necessary  to  enable  the  bank  to 
avail  itself  of  its  funds  there;  it  will  also  serve  to  raise 
the  demand  for  bank-notes,  by  rendering  them  useful  in 
foreign  commerce,  the  promoting  which  is  a  further 
inducement. 


372  Alexander  Hamilton 

The  limiting  the  aggregate  of  the  notes  to  the  amount 
of  the  stock,  is  necessary  to  obviate  a  suspicion  of  their 
being  multiplied  beyond  the  means  of  redemption. 

ART.  VIII.  The  bank  to  lend  money  to  the  pub 
lic,  or  to  individuals,  at  an  interest  not  exceeding 
eight  per  cent. 

REMARK  8.  In  the  beginning  it  will  be  for  the  advant 
age  of  the  bank  to  require  high  interest,  because  the 
money  is  in  great  demand,  and  the  bank  itself  will  want 
the  principal  part  of  its  cash  for  the  loans  stipulated  in 
Article  XI II.,  and  for  performing  the  contracts  author 
ized  by  Article  XII. ;  so  that  the  profits  will  not,  for 
some  time,  turn  materially  on  the  principle  of  loans, 
except  that  to  the  public.  But  when  the  contracts  cease, 
the  bank  will  find  its  advantage  in  lending,  at  a  moderate 
interest,  to  secure  a  preference  from  borrowers,  which 
will,  at  the  same  time,  promote  commerce;  and  by  a 
kind  of  mutual  reaction,  the  bank  will  assist  commerce, 
and  commerce  will  assist  the  bank. 

ART.  IX.  The  bank  to  have  liberty  of  borrowing, 
on  the  best  terms  it  can,  to  the  amount  of  one  half 
of  its  stock. 

REMARK  9.  This  is  a  precaution  against  a  sudden  run. 
It  may  borrow  in  proportion  to  what  it  pays.  It  has 
another  advantage :  at  particular  conjunctures  the  bank 
may  borrow  at  a  low  interest,  and  lend,  at  others,  at  a 
higher. 

ART.  X.  The  bank  to  have  liberty  of  purchasing 
estates  by  principal,  or  by  annuities;  the  power  of 
coining  to  the  amount  of  half  its  stock,  the  quantity 


National  Bank  373 

of  alloy,  etc.,  being  determined  by  Congress;    also 
the  power  of  discounting  bills  of  exchange. 

REMARK  10.  This  privilege  of  purchasing  estates  will 
be  a  very  valuable  one.  By  watching  favorable  oppor 
tunities,  with  so  large  a  capital,  vast  property  may  be 
acquired  in  this  way.  There  will  be  a  fine  opening  at  the 
conclusion  of  the  war.  Many  persons  disaffected  to  our 
independence,  who  have  rendered  themselves  odious  with 
out  becoming  obnoxious  to  the  laws,  will  be  disposed  to 
sell  their  estates  here,  either  for  their  whole  value,  or  for 
annuities  in  Europe.  The  power  of  coining  l  is  necessary, 
as  plate,  or  bullion,  is  admitted  instead  of  specie ;  and  it 
may  be,  on  particular  occasions,  expedient  to  coin  them; 
this  will  be  a  small  resource  to  the  bank.  The  power  of 
discounting  bills  of  exchange  will  be  a  considerable  one. 
Its  advantages  will  consist  in  purchasing,  or  taking  up  for 
the  honor  of  the  drawer,  when  the  security  is  good,  bills 
of  exchange  at  so  much  per  cent,  discount.  A  large  profit 
might  be  now  made  in  this  way  on  the  bills  drawn  on 
France ;  and  hereafter,  in  times  of  peace,  when  commerce 
comes  to  flourish,  this  practice  will  promote  the  transac 
tions  of  the  several  States  with  each  other,  and  with 
Europe,  and  will  be  very  profitable  to  the  bank. 

ART.  XL  The  bank  to  receive  from  individuals 
deposits  of  any  sums  of  money,  to  be  repaid  when 
called  for,  or  passed,  by  order,  to  the  credit  of  others ; 
or  deposits  of  plate,  paying  a  certain  annual  rate  for 
safe-keeping.  Whatever  is  deposited  in  the  bank, 
to  be  exempt  from  taxes. 

*  It  may,  perhaps,  not  be  impossible  to  make  some  profitable  specu 
lations  on  the  bullion  which  the  Spaniards  are  afraid  to  transport 
from  South  America  to  Europe. 


374  Alexander  Hamilton 

REMARK  n.  This  is  in  imitation  of  the  Bank  of  Am 
sterdam.  If  individuals  once  get  into  the  practice  of 
depositing  their  money  in  bank,  it  will  give  credit  to  the 
bank,  and  assist  trade.  In  time,  a  premium  may  be  re 
quired  at  repayment  as  in  Holland.  A  small  profit  may 
be  immediately  gained  on  plate,  as  the  States  begin  to 
tax  this  article;  and  many  persons  will  dispense  at  this 
time  with  the  use  of  their  plate,  if  they  can  deposit  it  in  a 
place  of  safety,  and  pay  less  for  keeping  it  than  the  tax. 
Whatever  serves  to  increase  the  apparent  wealth  of  the 
bank,  will  enhance  its  credit!  It  may  even  be  useful  to 
let  the  owners  of  the  plate  have  credit  in  bank  for  the 
value  of  the  plate,  estimated  on  a  scale  that  would  make 
it  for  the  advantage  of  the  bank  to  purchase. 

ART.  XII.  The  bank  to  have  a  right  to  contract 
with  the  French  Government  for  the  supply  of  its 
fleets  and  armies  in  America,  and  to  contract  with 
Congress  for  the  supply  of  their  armies. 

REMARK  12.  It  will  be  of  great  importance  to  the  suc 
cess  of  the  subscriptions,  that  a  previous  assurance  of 
these  contracts  should  take  place:  the  profits  of  them 
would  be  no  trifling  inducement  to  adventurers ;  it  would 
have  the  air  of  employing  the  money  subscribed  in  trade. 
As  soon,  therefore,  as  the  plan  should  be  resolved  upon, 
negotiations  should  be  begun  for  the  purpose.  It  is  so 
clearly  the  interest  of  the  French  Government  to  enter 
into  these  contracts,  that  they  must  be  blind  not  to  do  it, 
especially  when  it  is  proposed  under  the  aspect  of  a 
method  of  re-establishing  our  finances.  The  present  loss 
on  their  bills  is  enormous.  The  bank  may  engage  to 
receive  them  at  a  moderate  discount,  and  to  supply  on 
better  terms  than  they  now  make.  Their  business  is  at 
this  time  trusted  to  a  variety  of  hands,  some  of  which  are 


National  Bank  375 

neither  very  skilful  nor  very  honest :  competitions,  frauds, 
and  additional  expense,  are  the  consequences. 

Congress  could  not  hesitate  on  their  part,  as  the 
amount  of  the  contracts  would  be  a  part  of  the  loan  re 
quired  in  Article  XIII. 

ART.  XIII.  The  bank  to  lend  Congress  one  mil 
lion  two  hundred  thousand  pounds,  lawful,  at  eight 
per  cent,  interest;  for  the  payment  of  which,  with 
its  interest,  a  certain  unalienable  fund  of  one  hund 
red  and  ten  thousand  four  hundred  pounds  per 
annum,  to  be  established  for  twenty  years.  The 
States,  generally  and  severally,  to  pledge  them 
selves  for  this  sum,  and  for  the  due  appropriation  of 
the  fund.  Congress  to  have  a  right,  at  any  inter 
mediate  period,  to  pay  off  the  debt,  with  the  in 
terest  to  the  time  of  payment.  The  same  rule  to 
govern  in  all  future  loans. 

REMARK  13.  This  loan  will  enable  Congress  to  get 
through  the  expenses  of  the  year.  There  may  be  a  small 
deficiency,  but  this  will  be  easily  supplied.  The  credit 
of  the  bank  once  established,  it  may  increase  its  stock, 
and  lend  an  equal  sum  every  year  during  the  war.  This 
loan  may  be  advanced,  partly  in  a  contract  for  provisions, 
clothing,  etc.,  and  partly  in  cash,  at  periodical  payments, 
to  avoid  a  too  quick  multiplication  of  bank-notes. 

ART.  XIV.  The  bank  to  become  responsible  for 
the  redemption  of  all  the  paper  now  emitted;  the 
old,  at  forty  for  one  in  thirty  years,  the  new  at  par, 
with  gold  and  silver,  according  to  the  terms  pro 
mised  by  Congress  in  their  resolution  of  March,  '80. 
One  third  of  the  first  to  be  redeemed  at  the  end  of 


376  Alexander  Hamilton 

every  ten  years ;  and  the  whole  of  the  last  to  be  re 
deemed  at  the  expiration  of  the  six  years  specified 
by  Congress,  with  the  interest  of  five  per  cent.  The 
United  States,  in  compensation  for  this  responsibility, 
to  establish  certain  funds  for  an  annuity,  payable  to 
the  bank,  equal  to  the  discharge  of  the  whole  amount 
of  the  paper  currency  in  thirty  years,  with  an  interest 
of  two  per  cent,  per  annum. 

REMARK  14.  It  is  of  the  greatest  importance  that  the 
old  currency  should  be  fixed  at  a  certain  value,  or  there 
will  be  danger  of  its  infecting  the  future  paper ;  besides, 
we  want  to  raise  it  to  a  point  that  will  make  it  approach 
nearer  to  an  adequate  medium.  I  have  chosen  the  re 
solution  of  March,  '80,  as  a  standard.  We  ought  not,  on 
any  account,  to  raise  the  value  of  the  old  paper  higher 
than  forty  to  one,  for  this  will  give  it  about  the  degree 
of  value  that  is  most  salutary ;  at  the  same  time  that  it 
will  avoid  a  second  breach  of  faith,  which  would  cause 
a  violent  death  to  all  future  credit.  A  stable  currency 
is  an  idea  fundamental  to  all  practicable  schemes  of  fi 
nance.  It  is  the  duty  and  interest  of  the  public  to  give 
stability  to  that  which  now  exists ;  and  it  will  be  the 
interest  of  the  bank,  which  alone  can  effect  it,  to  co 
operate.  I  have  not  mentioned  the  amount  of  the  annuity 
to  be  paid  by  Congress,  because  I  have  not  materials  to 
judge  what  quantity  of  paper  money  now  exists;  since 
it  will  be  necessary  to  take  all  the  State  emissions  into 
the  calculation.  I  suppose  (including  State  emissions) 
there  may  be  about  four  hundred  millions  of  dollars  of 
the  old  standard,  and  about  four  millions  of  the  new.1 
This  will  give  us,  in  specie-value,  about  fourteen  mil- 

1  It  is  impossible  too  soon  to  make  some  arrangement  that  will 
enable  Congress  to  put  a  stop  to  the  further  emission. 


National  Bank  377 

lions  of  dollars.  This  is  what  the  bank  is  to  become 
answerable  for,  and  what  the  public  is  to  pay,  by  an 
annuity  of  thirty  years,  with  two  per  cent,  interest. 
This  annuity  would  amount  to  six  hundred  and  eleven 
thousand  three  hundred  and  thirty -three  and  one  third 
dollars,  for  which  funds  are  to  be  provided. 

By  a  rough  calculation,  I  find  that  the  bank  would 
gain,  in  the  thirty  years,  about  three  millions  of  dollars, 
on  the  simple  footing  of  interest;  and  that  it  will,  at 
different  periods,  have  more  public  money  in  its  posesssion 
than  it  will  be  in  advance  at  others;  so  that,  upon  the 
whole,  the  sum  it  will  gain  in  interest  will  be  for  the  loan 
of  its  credit  to  the  public,  not  of  any  specific  sum  of  cash. 
Besides,  the  interest  of  the  bank  may  gain  a  very  consid 
erable  sum  by  the  purchases  it  may  make  of  the  old  paper 
at  its  current  value,  before  the  influence  of  this  plan  has 
time  to  bring  it  back  to  the  point  at  which  it  is  intended 
to  be  fixed.1  It  is  the  obvious  interest  of  the  United 
States  to  concur  in  this  plan,  because,  by  paying  three 
millions  of  dollars  in  interest  to  the  bank,  more  than  it 
would  have  to  pay  to  the  money-holders,  agreeably  to 
its  present  engagements,  it  would  avoid  a  new  breach 
of  faith,  fix  its  circulating  medium  increased  in  value 
more  than  one  half,  render  the  taxes  more  productive, 
and  introduce  order  into  its  finances,  without  which  our 
independence  is  lost.  It  will  also  have  only  about  two 
thirds  of  the  funds  to  establish  for  this  plan  that  are 
required  by  the  act  of  March,  '80,  to  discharge  the  new 
bills ;  it  will,  of  course,  reserve  a  large  balance  toward  the 
current  expenses,  which  is  no  insignificant  consideration. 

Perhaps  it  may  be  imagined  that   the  same  funds 

1  There  is  another  immense  consideration.  The  proprietors  of  the 
bank  will  be  the  holders  of  a  great  part  of  this  paper.  They  have  it 
in  their  power  to  double  the  value  of  it  by  this  plan,  which  is,  in  other 
words,  to  gain  a  hundred  per  cent. 


Alexander  Hamilton 

established  for  the  redemption  of  the  money  in  the  same 
time,  without  passing  through  the  bank,  would  have  an 
equal  effect  upon  its  credit,  and  then  we  should  save  the 
interest  of  two  per  cent.  Experience  proves  the  contrary. 
We  find  the  new  notes  depreciating  in  the  States  which 
have  provided  good  funds.  The  truth  is,  there  is  not 
confidence  enough  in  any  funds  merely  public.  The  re 
sponsibility  of  the  bank  would  beget  a  much  stronger 
persuasion  of  the  paper  being  redeemed,  and  have  incom 
parably  more  efficacy  in  raising  and  confirming  its  credit. 
Besides,  the  bank  might  immediately  reduce  the  quantity 
by  purchase,  which  the  public  could  not  do. 

It  will  be  observed  that  of  the  six  millions  of  dollars 
which  constitute  our  annual  revenue,  I  require  nine  hund 
red  and  seventy-nine  thousand  three  hundred  and  thirty- 
three  and  one  third  dollars,  in  funds,  to  reimburse  the 
loan  for  the  first  year,  and  pay  off  the  annuity  for  the 
redemption  of  the  old  paper.  It  may  be  asked,  where 
these  funds  are  to  be  procured  in  the  present  impotence 
of  our  Federal  Government.  I  answer,  there  are  ample 
means  for  them,  and  they  must  be  had.  Congress  must 
deal  plainly  with  their  constituents.  They  must  tell 
them  that  power  without  revenue  is  a  bubble ;  that  unless 
they  give  them  substantial  resources  of  the  latter,  they 
will  not  have  enough  of  the  former  either  to  prosecute 
the  war  or  to  maintain  the  Union  in  peace ;  that,  in  short, 
they  must,  in  justice  to  the  public  and  to  their  own 
honor,  renounce  the  vain  attempt  of  carrying  on  the  war 
without  either,  a  perseverance  in  which,  can  only  deceive 
the  people,  and  betray  their  safety.  They  must  demand 
an  instant,  positive,  and  perpetual  investiture  of  an  im 
post  on  trade;  a  land  tax  and  a  poll  tax,  to  be  collected 
by  their  own  agents.  This  act  to  become  a  part  of  the 
Confederation. 

It  has  ever  been  my  opinion  that  Congress  ought  to 


National  Bank  379 

have  complete  sovereignty  in  all  but  the  mere  municipal 
law  of  each  State;  and  I  wish  to  see  a  convention  of 
all  the  States,  with  full  power  to  alter  and  amend,  fin 
ally  and  irrevocably,  the  present  futile  and  senseless 
Confederation . 

The  taxes  specified  may  be  made  to  amount  to  three 
millions  of  dollars ;  the  other  three  millions  to  be  raised 
by  requisition,  as  heretofore. 

ART.  XV.  The  bank-notes  to  be  received  in  pay 
ment  of  all  public  customs  and  taxes,  at  an  equival 
ent  with  gold  and  silver. 

REMARK  15.  It  is  essential  that  all  taxes  should  be 
raised,  throughout  the  United  States,  in  specie,  or  bank 
notes  at  par,  or  the  old  paper  at  its  current  value  at  the 
time  of  payment.  This  will  serve  to  increase  the  circu 
lation  and  credit  of  the  bank-notes ;  but  no  person  should 
be  obliged  to  receive  them  in  private  dealings.  Their 
credit  must  depend  on  opinion;  and  this  opinion  would 
be  injured  by  legislative  interposition. 

ART.  XVI.  The  bank  to  dissolve  itself  whenever 
it  thinks  proper,  making  effectual  provision  for  the 
payment  of  its  debts;  and  a  proprietor  of  bank 
stock  to  have  the  privilege  of  selling  out  whenever 
he  pleases. 

REMARK  16.  This  permission  to  dissolve  or  sell  at 
pleasure  will  encourage  men  to  adventure;  and,  when 
once  engaged,  the  profits  will  make  them  willing  to 
continue. 

ART.  XVII.  The  bank  to  be  established  for  thirty 
years  by  way  of  experiment. 


Alexander  Hamilton 

REMARK  17.  This  is  chiefly  to  prevent  some  speculative 
men  being  alarmed,  who,  upon  the  whole,  may  think  a 
paper  credit  detrimental  and  dangerous,  though  they 
would  be  willing,  from  necessity,  to  encourage  it  for  a 
limited  time.  Experience,  too,  may  show  the  defects  of 
this  plan,  and  give  rise  to  alterations  for  the  better. 

ART.  XVIII.  No  other  bank,  public  or  private,  to 
be  permitted  during  that  period. 

REMARK  18.  Other  banks  might  excite  a  competition 
prejudicial  to  the  interests  of  this,  and  multiply  and 
diversify  paper  credit  too  much. 

ART.  XIX.  Three  banks  to  be  erected  in  Massa 
chusetts,  Pennsylvania,  and  Virginia,  to  facilitate 
the  circulation  and  payment  of  the  bank-notes. 

REMARK  19.  These  banks  ought  to  be  in  the  interior 
of  the  country,  remote  from  danger,  with  every  precau 
tion  for  their  security  in  every  way.  Their  distance  from 
the  capital  trading  points  will  be  an  advantage,  as  it  will 
make  applications  for  the  payment  of  bank-notes  less 
convenient. 

ART.  XX.  The  affairs  of  the  bank  to  be  managed 
by  twelve  general  directors,  men  of  reputation  and 
fortune;  eight  of  them  to  be  chosen  by  the  private 
proprietors,  and  four  by  Congress.  The  Minister  of 
Finance  to  have  the  privilege  of  inspecting  all  their 
proceedings. 

REMARK  20.  It  is  necessary,  for  reciprocal  security  of 
the  public,  the  proprietors,  and  the  people,  that  the  affairs 
of  the  bank  should  be  conducted  under  a  joint  direction. 


National  Bank  381 

These,  as  has  been  already  observed,  are  only  in 
tended  as  outlines;  the  form  of  administration  for 
the  bank,  and  all  other  matters,  may  be  easily  deter 
mined,  if  the  leading  principles  are  once  approved. 
We  shall  find  good  models  in  the  different  European 
banks,  which  we  can  accommodate  to  our  circum 
stances.  Great  care,  in  particular,  should  be  em 
ployed  to  guard  against  counterfeits;  and  I  think 
methods  may  be  devised  that  would  be  effectual. 

I  see  nothing  to  prevent  the  practicability  of  a 
plan  of  this  kind,  but  a  distrust  of  the  final  success 
of  the  war,  which  may  make  men  afraid  to  risk  any 
considerable  part  of  their  fortunes  in  the  public  funds ; 
but,  without  being  an  enthusiast,  I  will  venture  to 
assert,  that,  with  such  a  resource  as  is  here  proposed, 
the  loss  of  our  independence  is  impossible.  All  we 
have  to  fear  is,  that  the  want  of  money  may  disband 
the  army,  or  so  perplex  and  enfeeble  our  operations 
as  to  create  in  the  people  a  general  disgust  and 
alarm,  which  may  make  them  clamor  for  peace  on 
any  terms.  But  if  a  judicious  administration  of  our 
finances,  assisted  by  a  bank,  takes  place,  and  the 
ancient  security  of  property  is  restored,  no  convul 
sion  is  to  be  apprehended.  Our  opposition  will  soon 
assume  an  aspect  of  system  and  vigor,  that  will  re 
lieve  and  encourage  the  people,  and  put  an  end  to 
the  hopes  of  the  enemy.  T  is  evident  that  they 
have  it  not  in  their  power  to  subdue  us  by  force  of 
arms.  In  all  these  States  they  have  not  more  than 
fifteen  thousand  effective  troops,  nor  is  it  possible 
for  them  much  to  augment  this  number.  The  East 
and  West  Indies  demand  reinforcements.  In  all  the 


382  Alexander  Hamilton 

islands,  they  have  not,  at  this  time,  above  five  thou 
sand  men;  a  force  not  more  than  equal  to  the 
proper  garrisoning  of  Jamaica  alone;  and  which, 
the  moment  they  lose  a  maritime  superiority  in 
those  seas,  will  leave  them  much  cause  to  fear  for 
their  possessions.  They  will  probably  send  out 
fifteen  hundred  to  two  thousand  men,  to  recruit 
their  regiments  already  here;  but  this  is  the  utmost 
they  can  do. 

Our  allies  have  five  thousand  men  at  Rhode 
Island,  which,  in  the  worst  event  that  can  happen, 
will  be  recruited  to  eight,  to  co-operate  with  us  on  a 
defensive  plan.  Should  our  army  amount  to  no 
more  than  fifteen  thousand  men,  the  combined 
forces,  though  not  equal  to  the  expulsion  of  the 
enemy,  will  be  equal  to  the  purpose  of  compelling 
them  to  renounce  their  offensive,  and  to  content 
themselves  with  maintaining  one  or  two  capital 
points.  This  is  on  the  supposition  that  the  public 
have  the  means  of  putting  their  troops  in  activity. 
By  stopping  the  progress  of  their  conquests,  and  re 
ducing  them  to  an  unmeaning  and  disgraceful  de 
fensive,  we  destroy  the  national  expectation  of 
success,  from  which  the  ministry  draw  their  re 
sources.  It  is  not  a  vague  conjecture,  but  a  fact 
founded  on  the  best  information,  that,  had  it  not 
been  for  the  capture  of  Charleston  and  the  victory 
of  Camden,  the  ministry  would  have  been  in  the 
utmost  embarrassment  for  the  supplies  of  this  year. 
On  the  credit  of  those  events  they  procured  a  loan 
of  five  and  twenty  millions.  They  are  in  a  situa 
tion  where  a  want  of  splendid  success  is  ruin.  They 


National  Bank  383 

have  carried  taxation  nearly  to  its  extreme  bound 
ary;  they  have  mortgaged  all  their  funds;  they 
have  a  large  unfunded  debt,  besides  the  enormous 
mass  which  is  funded.  This  must  necessarily  create 
apprehensions  in  their  most  sanguine  partisans ;  and 
if  these  are  not  counteracted  by  flattering  events, 
from  time  to  time,  they  cannot  much  longer  con 
tinue  the  delusion.  Indeed,  in  this  case,  I  suppose 
they  must  themselves  despair. 

The  game  we  play  is  a  sure  game,  if  we  play  it 
with  skill.  I  have  calculated,  in  the  preceding  ob 
servations,  on  the  most  disadvantageous  side.  Many 
events  may  turn  up,  in  the  course  of  the  summer,  to 
make  even  the  present  campaign  decisive. 

If  we  compare  the  real  ability  of  France,  for 
revenue,  with  that  of  Great  Britain;  the  economy 
and  sagacity  in  the  conduct  of  the  finances  of  the 
former;  the  extravagance  and  dissipation  which  are 
overwhelming  those  of  the  latter;  there  will  be 
found  every  reason  to  believe  that  the  resources  of 
France  will  outlast  those  of  her  adversary.  Her 
fleet  is  not  much  inferior,  independent  of  that  of 
Spain  and  Holland.  Combined  with  that  of  Spain, 
it  is  greatly  superior.  If  the  Dutch  enter  into  the 
war  in  earnest,  and  add  their  fleet,  the  superiority 
will  be  irresistible.  Notwithstanding  the  injury 
they  may  sustain  in  the  first  instance,  the  Dutch 
will  be  still  formidable:  they  are  rich  in  credit,  and 
have  extensive  means  for  maritime  power. 

Except  the  Emperor,  who  is  hostile,  and  the  Dane, 
who  is  neutral,  all  the  rest  of  Europe  are  either 
friends  to  France  or  to  our  independence. 


384  Alexander  Hamilton 

Never  did  a  nation  unite  more  circumstances  in 
its  favor  than  we  do;  we  have  nothing  against  us 
but  our  own  misconduct. 

There  are  two  classes  oi  men  among  us,  equally 
mistaken:  one  who,  in  spite  of  daily  experience,  of 
accumulated  distress,  persist  in  a  narrow  line  of 
policy,  and,  amidst  the  most  threatening  dangers, 
fancy  every  thing  in  perfect  security.  Another, 
who,  judging  too  much  from  the  outside,  alarmed  by 
partial  misfortunes  and  the  disordered  state  of  our 
finances,  without  estimating  the  real  faculties  of  the 
parties,  give  themselves  up  to  an  ignorant  and  ill- 
founded  despondency.  We  want  to  learn  to  appre 
ciate  our  true  situation  and  that  of  the  enemy. 
This  would  preserve  us  from  a  stupid  insensibility  to 
danger  on  the  one  hand,  and  inspire  us  with  a  reason 
able  and  enlightened  confidence  on  the  other. 

But  let  us  suppose  the  worst — that  we  shall,  after 
all,  fail  in  our  independence;  our  return  to  Great 
Britain,  whenever  it  should  happen,  would  be  by 
compact.  The  war  would  terminate  by  a  media 
tion.  It  cannot  be  supposed  that  the  mediator 
would  be  so  devoted  to  Great  Britain,  or  would  have 
so  little  consideration  for  France,  as  to  oblige  us  to 
revert  to  our  former  subjection  by  an  unconditional 
surrender.  While  they  might  confirm  his  dominion 
over  us,  they  would  endeavor  to  save  appearances 
for  the  honor  of  France,  and  stipulate  terms  as 
favorable  to  us  as  would  be  compatible  with  a  state 
of  dependence.  A  general  amnesty,  and  the  secur 
ity  of  private  property  (of  course,  the  payment  of 
public  debts),  would  be  among  the  most  simple  and 


National  Bank  385 

most  indispensable.  This  would  comprehend  the 
concerns  of  the  bank;  and  if,  unfortunately  for  our 
virtue,  such  a  circumstance  could  operate  as  an  in 
ducement,  it  might  be  added  that  our  enemies  would 
be  glad  to  find  and  to  encourage  such  an  institution 
among  us  for  their  own  benefit. 

A  question  may  arise  concerning  the  abilities  of 
these  States  to  pay  their  debts  after  the  establish 
ment  of  their  independence;  and  though  any  doubt 
on  this  head  must  originate  from  gross  ignorance,  it 
may  be  necessary  to  oppose  it  with  more  than  gen 
eral  argument,  as  has  been  done  heretofore.  A 
very  summary  and  obvious  calculation  will  show 
that  there  is  nothing  to  be  dreaded  on  this  head. 

The  funds  of  nine  hundred  and  seventy-nine 
thousand  three  hundred  and  thirty-three  and  one 
third  dollars,  proposed  to  be  established  for  paying 
off  the  loan  of  the  first  year  and  for  redeeming  the 
present  paper,  will  in  thirty  years  wipe  off  all  the 
debts  of  the  States,  except  those  contracted  to 
foreigners,  which,  I  imagine,  do  not  amount  to  four 
millions  of  dollars.  Suppose  we  should  be  obliged, 
for  two  years  besides  the  present,  to  borrow  an  equal 
sum  each  year  from  the  bank;  the  fund  requisite  to 
discharge  these  loans,  on  the  same  terms  as  the  first, 
will  amount  to  seven  hundred  and  thirty-six  thou 
sand  dollars,  to  be  deducted  from  the  five  million 
and  twenty  thousand  six  hundred  and  sixty-six  and 
two  thirds  dollars  remaining  on  the  annual  revenue, 
which  will  reduce  it  to  four  millions  two  hundred  and 
eighty-four  thousand  six  hundred  and  sixty-six  and 
two  thirds  dollars ;  then  the  debt  unfunded  will  be : 


386  Alexander  Hamilton 

To  foreigners  already  contracted  by  suppos 
ition  .  $4,000,000 

Deficiency  of  revenue  to  the  expense  to  be 
obtained  on  credit,  the  first  year,  be 
sides  the  loan  from  the  bank  .  i,479»333i 

Deficiency  of  revenue  for  the  second  year, 
deducting  the  fund  for  discharging  the 
loan  of  this  year 1,847, 333^ 

Deficiency  of  revenue  for  the  third  year, 

making  the  same  deduction  .  .  2,215,333^ 

$9,542,000 

Should,  then,  the  war  last  three  years  longer, 
which  must  probably  be  the  utmost  term  of  its  dura 
tion,  we  shall  find  ourselves  with  an  unfunded  debt 
of  nine  million  five  hundred  and  forty-two  thousand 
dollars,  and  an  unappropriated  revenue  of  four 
million  two  hundred  and  eighty-four  thousand  six 
hundred  and  sixty-six  and  two  thirds  dollars. 

The  surplus  of  four  millions,  which  is  two  hundred 
and  eighty-four  thousand  six  hundred  and  sixty-six 
and  two  thirds  dollars,  and  the  funds  appropriated 
to  the  payment  of  the  other  debts  which  will  revert 
to  the  public  at  the  end  of  thirty  years,  will  be  a 
sufficient  fund  for  the  redemption  of  this  debt  in 
about  thirty-five  years;  so  that,  according  to  my 
plan,  at  the  end  of  thirty-five  years  these  States  have 
paid  off  the  whole  debt  contracted  on  account  of  the 
war;  and,  in  the  meantime,  will  have  a  clear  revenue 
of  four  millions  of  dollars  for  defraying  the  expenses 
of  their  civil  and  military  establishments. 

This  calculation  supposes  the  ability  of  these 
States  for  revenue  to  continue  the  same  as  they  now 
are,  which  is  a  supposition  both  false  and  unfavor- 


National  Bank  387 

able.  Speaking  within  moderate  bounds,  our  popu 
lation  will  be  doubled  in  thirty  years;  there  will  be 
a  confluence  of  emigrants  from  all  parts  of  the 
world,  our  commerce  will  have  a  proportionable 
progress,  and  of  course  our  wealth  and  capacity  for 
revenue.  It  will  be  a  matter  of  choice  if  we  are  not 
out  of  debt  in  twenty  years,  without  at  all  encum 
bering  the  people. 

A  national  debt,  if  it  is  not  excessive,  will  be  to  us 
a  national  blessing.  It  will  be  a  powerful  cement  of 
our  Union.  It  will  also  create  a  necessity  for  keep 
ing  up  taxation  to  a  degree  which,  without  being 
oppressive,  will  be  a  spur  to  industry,  remote  as  we 
are  from  Europe,  and  shall  be  from  danger.  It  were 
otherwise  to  be  feared  our  popular  maxims  would  in 
cline  us  to  too  great  parsimony  and  indulgence.  We 
labor  less  now  than  any  civilized  nation  of  Europe; 
and  a  habit  of  labor  in  the  people  is  as  essential  to 
the  health  and  vigor  of  their  minds  and  bodies,  as 
it  is  conducive  to  the  welfare  of  the  state.  We 
ought  not  to  suffer  our  self-love  to  deceive  us  in  a 
comparison  upon  these  points. 

I  have  spun  out  this  letter  to  a  much  greater 
length  than  I  intended.  To  develop  the  whole  con 
nection  of  my  ideas  on  the  subject,  and  place  my 
plan  in  the  clearest  light,  I  have  indulged  myself  in 
many  observations  which  might  have  been  omitted. 
I  shall  not  longer  intrude  upon  your  patience  than 
to  assure  you  of  the  sincere  sentiments  of  esteem 
with  which  I  have  the  honor  to  be, 

Sir,  your  most  obedient  and  humble  servant, 

A.  HAMILTON. 


388  Alexander  Hamilton 

NATIONAL   BANK 

Communicated  to  the  House  of  Representatives,  December  14,  1790. 
TREASURY  DEPARTMENT,  December  13,  1790. 

In  obedience  to  the  order  of  the  House  of  Repre 
sentatives  of  the  ninth  day  of  August  last,  requir 
ing  the  Secretary  of  the  Treasury  to  prepare  and 
report  on  this  day  such  further  provision  as  may,  in 
his  opinion,  be  necessary  for  establishing  the  pub 
lic  credit,  the  said  Secretary  further  respectfully 
reports : 

That,  from  a  conviction  (as  suggested  in  his  report 
herewith  presented ')  that  a  national  bank  is  an  in 
stitution  of  primary  importance  to  the  prosperous 
administration  of  the  finances,  and  would  be  of  the 
greatest  utility  in  the  operations  connected  with  the 
support  of  the  public  credit,  his  attention  has  been 
drawn  to  devising  the  plan  of  such  an  institution, 
upon  a  scale  which  will  entitle  it  to  the  confidence, 
and  be  likely  to  render  it  equal  to  the  exigencies,  of 
the  public. 

Previously  to  entering  upon  the  detail  of  this 
plan,  he  entreats  the  indulgence  of  the  House  towards 
some  preliminary  reflections  naturally  arising  out  of 
the  subject,  which  he  hopes  will  be  deemed  neither 
useless  nor  out  of  place.  Public  opinion  being  the 
ultimate  arbiter  of  every  measure  of  government, 
it  can  scarcely  appear  improper,  in  deference  to  that, 
to  accompany  the  origination  of  any  new  proposi 
tion  with  explanations,  which  the  superior  informa- 

1  See  Report  on  "  Public  Credit,"  vol.  ii.,  p.  337. 


National  Bank  389 

tion  of  those  to  whom  it  is  immediately  addressed 
would  render  superfluous. 

It  is  a  fact,  well  understood,  that  public  banks 
have  found  admission  and  patronage  among  the 
principal  and  most  enlightened  commercial  nations. 
They  have  successively  obtained  in  Italy,  Germany, 
Holland,  England,  and  France,  as  well  as  in  the 
United  States.  And  it  is  a  circumstance  which  can 
not  but  have  considerable  weight,  in  a  candid  esti 
mate  of  their  tendency,  that  after  an  experience  of 
centuries,  there  exists  not  a  question  about  their 
utility  in  the  countries  in  which  they  have  been  so 
long  established.  Theorists  and  men  of  business 
unite  in  the  acknowledgment  of  it. 

Trade  and  industry,  wherever  they  have  been 
tried,  have  been  indebted  to  them  for  important 
aid,  and  government  has  been  repeatedly  under  the 
greatest  obligations  to  them  in  dangerous  and  dis 
tressing  emergencies.  That  of  the  United  States,  as 
well  in  some  of  the  most  critical  conjunctures  of  the 
late  war,  as  since  the  peace,  has  received  assistance 
from  those  established  among  us,  with  which  it  could 
not  have  dispensed. 

With  this  twofold  evidence  before  us,  it  might  be 
expected  that  there  would  be  a  perfect  union  of 
opinions  in  their  favor.  Yetjdouhts  .ha ve^ been  en 
tertained;  jealousies  and  prejudices  have  circulated; 
and,  though  experience  is  every  day  dissipating 
them,  within  the  spheres  in  which  effects  are  best 
known,  yet  there  are  still  persons  by  whom  they 
have  not  been  entirely  renounced.  To  give  a  full 
and  accurate  view  of  the  subject,  would  be  to  make 


390  Alexander  Hamilton 

a  treatise  of  a  report ;  but  there  are  certain  aspects  in 
which  it  may  be  cursorily  exhibited,  which  may  per 
haps  conduce  to  a  just  impression  of  its  merits.  These 
will  involve  a  comparison  of  the  advantages,  with  the 
disadvantages,  real  or  supposed,  of  such  institutions. 

The  following  are  among  the  principal  advantages 
of  a  bank : 

First. — The.  augmentation  of  the  active  or  pro 
ductive  capital  of  a  country.  Gold  and  silver,  when 
they  are  employed  merely  as  the  instruments  of  ex 
change  and  alienation,  have  not  been  improperly  de 
nominated  dead  stock ;  but  when  deposited  in  banks, 
to  become  the  basis  of  a  paper  circulation,  which 
takes  their  character  and  place,  as  the  signs  or 
representatives  of  value,  they  then  acquire  life,  or, 
in  other  words,  an  active  and  productive  quality. 
This  idea,  which  appears  rather  subtile  and  abstract 
in  a  general  form,  may  be  made  obvious  and  pal 
pable,  by  entering  into  a  few  particulars.  It  is  evid 
ent,  for  instance,  that  the  money  which  a  merchant 
keeps  in  his  chest,  waiting  for  a  favorable  opportun 
ity  to  employ  it,  produces  nothing  till  that  oppor 
tunity  arrives.  But  if,  instead  of  locking  it  up  in 
this  manner,  he  either  deposits  it  in  a  bank,  or  in 
vests  it  in  the  stock  of  a  bank,  it  yields  a  profit  during 
the  interval,  in  which  he  partakes,  or  not,  according 
to  the  choice  he  may  have  made  of  being  a  depositor 
or  a  proprietor ;  and  when  any  advantageous  spec 
ulation  offers,  in  order  to  be  able  to  embrace  it,  he 
has  only  to  withdraw  his  money,  if  a  depositor, 
or,  if  a  proprietor,  to  obtain  a  loan  from  the  bank, 
or  to  dispose  of  his  stock — an  alternative  seldom  or 


National  Bank  391 

never  attended  with  difficulty,  when  the  affairs  of 
the  institution  are  in  a  prosperous  train.  His  money, 
thus  deposited  or  invested,  is  a  fund  upon  which 
himself  and  others  can  borrow  to  a  much  larger 
amount.  It  is  a  well-established  fact,  that  banks  in 
good  credit  can  circulate  a  far  greater  sum  than  the 
,  actual  quantum  of  their  capital  in  gold  and  silver. 
The_extent  of  the  possible  excess  seems  indetermin-  - 
ate;  though  it  has  been  conjecturally  stated  at  the 
proportions  of  two  and  three  to  one.  This  faculty 
is  produced  in  various  ways.  ist.  A  great  propor 
tion  of  the  notes  which  are  issued,  and  pass  current 
as  cash,  are  indefinitely  suspended  in  circulation, 
from  the  confidence  which  each  holder  has,  that  he 
can,  at  any  moment,  turn  them  into  gold  and  silver. 
2dly.  Every  loan  which  a  bank  makes,  is,  in  its  first 
shape,  a  credit  given  to  the  borrower  on  its  books, 
the  amount  of  which  it  stands  ready  to  pay,  either  in 
its  own  notes,  or  in  gold  or  silver,  at  his  option.  But, 
in  a  great  number  of  cases,  no  actual  payment  is 
made  in  either.  The  borrower,  frequently,  by  a 
check  or  order,  transfers  his  credit  to  some  other 
person,  to  whom  he  has  a  payment  to  make;  who, 
in  his  turn,  is  as  often  content  with  a  similar  credit, 
because  he  is  satisfied  that  he  can,  whenever  he 
pleases,  either  convert  it  into  cash,  or  pass  it  to  some 
other  hand,  as  an  equivalent  for  it.  And  in  this 
manner  the  credit  keeps  circulating,  performing  in 
every  stage  the  office  of  money,  till  it  is  extinguished 
by  a  discount  with  some  person  who  has  a  payment 
to  make  to  the  bank,  to  an  equal  or  greater  amount. 
Thus  large  sums  are  lent  and  paid,  frequently 


392  Alexander  Hamilton 

through  a  variety  of  hands,  without  the  interven 
tion  of  a  single  piece  of  coin.  3dly.  There  is  always 
a  large  quantity  of  gold  and  silver  in  the  repositories 
of  the  bank,  besides  its  own  stock,  which  is  placed 
there,  with  a  view  partly  to  its  safe-keeping,  and 
partly  to  the  accommodation  of  an  institution  which 
is  itself  a  sort  of  general  accommodation.  These 
deposits  are  of  immense  consequence  in  the  opera 
tions  of  a  bank.  Though  liable  to  be  redrawn  at 
any  moment,  experience  proves,  that  the  money  so 
much  oftener  changes  proprietors  than  place,  and 
that  what  is  drawn  out  is  generally  so  speedily  re 
placed,  as  to  authorize  the  counting  upon  the  sums 
deposited,  as  an  effective  fund,  which,  concurring 
with  the  stock  of  the  bank,  enables  it  to  extend  its 
loans,  and  to  answer  all  the  demands  for  coin, 
whether  in  consequence  of  those  loans,  or  arising 
from  the  occasional  return  of  its  notes. 

These  different  circumstances  explain  the  manner 
in  which  the  ability  of  a  bank  to  circulate  a  greater 
sum  than  its  actual  capital  in  coin  is  acquired. 
This,  however,  must  be  gradual,  and  must  be  pre 
ceded  by  a  firm  establishment  of  confidence — a  con 
fidence  which  may  be  bestowed  on  the  most  rational 
grounds,  since  the  excess  in  question  will  always  be 
bottomed  on  good  security  of  one  kind  or  another. 
This,  every  well-conducted  bank  carefully  requires, 
before  it  will  consent  to  advance  either  its  money  or 
its  credit,  and  where  there  is  an  auxiliary  capital  (as 
will  be  the  case  in  the  plan  hereafter  submitted), 
which,  together  with  the  capital  in  coin,  defines  the 
boundary  that  shall  not  be  exceeded  by  the  engage- 


National  Bank  393 

ments  of  the  bank,  the  security  may,  consistently 
with  all  the  maxims  of  a  reasonable  circumspection, 
be  regarded  as  complete. 

The  same  circumstances  illustrate  the  truth  of  the 
position,  that  it  is  one  of  the  properties  of  banks  to 
increase  the  active  capital  of  a  country.  This,  in 
other  words,  is  the  sum  of  them:  the  money  of  one 
individual,  while  he  is  waiting  for  an  opportunity  to 
employ  it,  by  being  either  deposited  in  the  bank  for 
safe-keeping,  or  invested  in  its  stock,  is  in  a  condition 
to  administer  to  the  wants  of  others,  without  being 
put  out  of  his  own  reach  when  occasion  presents. 
This  yields  an  extra  profit,  arising  from  what  is  paid 
for  the  use  of  his  money  by  others,  when  he  could 
not  himself  make  use  of  it,  and  keeps  the  money  it 
self  in  a  state  of  incessant  activity.  In  the  almost 
infinite  vicissitudes  and  competitions  of  mercantile 
enterprise,  there  never  can  be  danger  of  an  intermis 
sion  of  demand,  or  that  the  money  will  remain  for 
a  moment  idle  in  the  vaults  of  the  bank.  This  ad 
ditional  employment  given  to  money,  and  the  faculty 
of  a  bank  to  lend  and  circulate  a  greater  sum  than  the 
amount  of  its  stock  in  coin,  are,  to  all  purposes  of 
trade  and  industry,  an  absolute  increase  of  capital. 
Purchases  and  undertakings,  in  general,  can  be  car 
ried  on  by  any  given  sum  of  bank  paper  or  credit, 
as  effectually  as  by  an  equal  sum  of  gold  and  silver. 
And  thus,  by  contributing  to  enlarge  the  mass  of 
industrious  and  commercial  enterprise,  banks  be 
come  nurseries  of  national  wealth — a  consequence 
as  satisfactorily  verified  by  experience,  as  it  is  clearly 
deducible  in  theory. 


394  Alexander  Hamilton 

Secondly. — Greater  facility  as  to  the  government 
in  obtaining  pecuniary  aids,  especially  in  sudden 
emergencies.  This  is  another  and  an  undisputed  ad 
vantage  of  public  banks — one  which,  as  already  re 
marked,  has  been  realized  in  signal  instances  among 
ourselves.  The  reason  is  obvious:  the  capitals  of  a 
great  number  of  individuals  are,  by  this  operation, 
collected  to  a  point,  and  placed  under  one  direction. 
The  mass  formed  by  this  union,  is,  in  a  certain  sense, 
magnified  by  the  credit  attached  to  it;  and  while 
this  mass  is  always  ready,  and  can  at  once  be  put  in 
motion,  in  aid  of  the  government,  the  interest  of  the 
bank  to  afford  that  aid,  independent  of  regard  to 
the  public  safety  and  welfare,  is  a  sure  pledge  for  its 
disposition  to  go  as  far  in  its  compliances  as  can  in 
prudence  be  desired.  There  is,  in  the  nature  of 
things,  as  will  be  more  particularly  noticed  in  an 
other  place,  an  intimate  connection  of  interest  be 
tween  the  government  and  the  bank  of  a  nation. 

Thirdly.  — The  facilitating  of  the  payment  of  taxes. 
I  This  advantage  is  produced  in  two  ways.  Those 
who  are  in  a  situation  to  have  access  to  the  bank, 
can  have  the  assistance  of  loans,  to  answer,  with 
punctuality,  the  public  calls  upon  them.  This  ac 
commodation  has  been  sensibly  felt  in  the  payment 
of  the  duties  heretofore  laid  by  those  who  reside 
where  establishments  of  this  nature  exist.  This, 
however,  though  an  extensive,  is  not  a  universal, 
benefit.  The  other  way  in  which  the  effect  here 
contemplated  is  produced,  and  in  which  the  benefit 
is  general,  is  the  increasing  of  the  quantity  of  cir 
culating  medium,  and  the  quickening  of  circulation. 


National  Bank  395 

The  manner  in  which  the  first  happens  has  already 
been  traced.  The  last  may  require  some  illustra 
tion.  When  payments  are  to  be  made  between 
different  places  having  an  intercourse  of  business 
with  each  other,  if  there  happen  to  be  no  private 
bills  at  market,  and  there  are  no  bank-notes  which 
have  a  currency  in  both,  the  consequence  is,  that 
coin  must  be  remitted.  This  is  attended  with 
trouble,  delay,  expense,  and  risk.  If,  on  the  con 
trary,  there  are  bank-notes  current  in  both  places, 
the  transmission  of  these  by  the  post,  or  any  other 
speedy  or  convenient  conveyance,  answers  the  pur 
pose  ;  and  these  again,  in  the  alternations  of  demand, 
are  frequently  returned,  very  soon  after,  to  the 
place  from  which  they  were  first  sent:  whence  the 
transportation  and  re-transportation  of  the  metals 
are  obviated,  and  a  more  convenient  and  more  ex 
peditious  medium  of  payment  is  substituted.  Nor 
is  this  all;  the  metals,  instead  of  being  suspended 
from  their  usual  functions  during  this  process  of 
vibration  from  place  to  place,  continue  in  activity, 
and  administer  still  to  the  ordinary  circulation, 
which,  of  course,  is  prevented  from  suffering  either 
diminution  or  stagnation.  These  circumstances  are 
additional  causes  of  what,  in  a  practical  sense,  or 
to  the  purposes  of  business,  may  be  called  greater 
plenty  of  money.  And  it  is  evident,  that  whatever 
enhances  the  quantity  of  circulating  money,  adds  to 
the  ease  with  which  every  industrious  member  of 
the  community  may  acquire  that  portion  of  it  of 
which  he  stands  in  need,  and  enables  him  the  better 
to  pay  his  taxes,  as  well  as  to  supply  his  other  wants. 


396  Alexander  Hamilton 

Even  where  the  circulation  of  the  bank  paper  is  not 
general,  it  must  still  have  the  same  effect,  though  in 
a  less  degree.  For,  whatever  furnishes  additional 
supplies  to  the  channels  of  circulation  in  one  quarter, 
naturally  contributes  to  keep  the  streams  fuller  else 
where.  This  last  view  of  the  subject  serves  both  to 
illustrate  the  position  that  banks  tend  to  facilitate 
the  payment  of  taxes,  and  to  exemplify  their  utility 
to  business  of  every  kind  in  which  money  is  an  agent. 

It  would  be  to  intrude  too  much  on  the  patience 
of  the  House,  to  prolong  the  details  of  the  advantages 
of  banks ;  especially  as  all  those  which  might  still  be 
particularized  are  readily  to  be  inferred  as  conse 
quences  from  those  which  have  been  enumerated. 
'  .  /Their  disadvantages,  real  or  supposed,  are  now  to  be 
reviewed.  The  most  serious  of  the  charges  which 
have  been  brought  against  them  are: 

That  they  serve  to  increase  usury; 

That  they  tend  to  prevent  other  kinds  of  lending; 

That  they  furnish  temptations  to  overtrading; 

That  they  afford  aid  to  ignorant  adventurers,  who 
disturb  the  natural  and  beneficial  course  of  trade ; 

That  they  give  to  bankrupt  and  fraudulent  traders 
a  fictitious  credit,  which  enables  them  to  maintain 
false  appearances  and  to  extend  their  impositions; 
and,  lastly, 

That  they  have  a  tendency  to  banish  gold  and 
silver  from  the  country. 

There  is  great  reason  to  believe,  that,  on  a  close 
and  candid  survey,  it  will  be  discovered  that  these 
charges  are  either  destitute  of  foundation,  or  that, 
as  far  as  the  evils  they  suggest  have  been  found  to 


National  Bank  397 

exist,  they  have  proceeded  from  other,  or  partial, 
or  temporary  causes,  are  not  inherent  in  the  nature 
and  permanent  tendency  of  such  institutions,  or  are 
more  than  counterbalanced  by  opposite  advantages. 
This  survey  shall  be  had  in  the  order  in  which  the 
charges  have  been  stated.  The  first  of  them  is — 

That  banks  serve  to  increase  usury. 

It  is  a  truth,  which  ought  not  to  be  denied,  that 
the  method  of  conducting  business,  which  is  essen 
tial  to  bank  operations,  has,  among  us,  in  particular 
instances,  given  occasion  to  usurious  transactions. 
The  punctuality  in  payment,  which  they  necessarily 
exact,  has  sometimes  obliged  those  who  have  adven 
tured  beyond  both  their  capital  and  their  credit,  to 
procure  money  at  any  price,  and,  consequently,  to 
resort  to  usurers  for  aid. 

But  experience  and  practice  gradually  bring  a  cure 
to  this  evil.  A  general  habit  of  punctuality  among 
traders  is  the  natural  consequence  of  the  necessity 
of  observing  it  with  the  bank — a  circumstance  which 
itself  more  than  compensates  for  any  occasional  ill 
which  may  have  sprung  from  that  necessity  in  the 
particular  under  consideration.  As  far,  therefore, 
as  traders  depend  on  each  other  for  pecuniary  sup 
plies,  they  can  calculate  their  expectations  with 
greater  certainty;  and  are  in  proportionably  less 
danger  of  disappointments,  which  might  compel 
them  to  have  recourse  to  so  pernicious  an  expedient 
as  that  of  borrowing  at  usury;  the  mischiefs  of 
which,  after  a  few  examples,  naturally  inspire  great 
care  in  all  but  men  of  desperate  circumstances,  to 
avoid  the  possibility  of  being  subjected  to  them. 


398  Alexander  Hamilton 

One,  and  not  the  least,  of  these  evils  incident  to  the 
use  of  that  expedient,  if  the  fact  be  known,  or  even 
strongly  suspected,  is  loss  of  credit  with  the  bank 
itself. 

The  directors  of  a  bank,  too,  though,  in  order  to 
extend  its  business  and  its  popularity  in  the  infancy 
of  an  institution,  they  may  be  tempted  to  go  further 
in  accommodation  than  the  strict  rules  of  prudence 
will  warrant,  grow  more  circumspect,  of  course,  as 
its  affairs  become  better  established,  and  as  evils  of 
too  great  facility  are  experimentally  demonstrated. 
They  become  more  attentive  to  the  situation  and 
conduct  of  those  with  whom  they  deal;  they  ob 
serve  more  narrowly  their  operations  and  pursuits; 
they  economize  the  credit  they  give  to  those  of  sus 
picious  solidity ;  they  refuse  it  to  those  whose  career 
is  more  manifestly  hazardous.  In  a  word,  in  the 
course  of  practice,  from  the  very  nature  of  things, 
the  interest  will  make  it  the  policy  of  a  bank  to 
succor  the  wary  and  industrious,  to  discredit  the 
rash  and  unthrifty,  to  discountenance  both  usurious 
lenders  and  usurious  borrowers. 

There  is  a  leading  view,  in  which  the  tendency  of 
banks  will  be  seen  to  be  to  abridge,  rather  than  to 
promote,  usury.  This  relates  to  their  property  of 
increasing  the  quantity  and  quickening  the  circula 
tion  of  money.  If  it  be  evident,  that  usury  will 
prevail  or  diminish  according  to  the  proportion 
which  the  demand  for  borrowing  bears  to  the  quan 
tity  of  money  at  market  to  be  lent,  whatever  has  the 
property  just  mentioned,  whether  it  be  in  the  shape 
of  paper  or  coin,  by  contributing  to  render  the  sup- 


National  Bank  399 

ply  more  equal  to  the  demand,  must  tend  to  counter 
act  the  progress  of  usury. 

But  bank-lending,  it  is  pretended,  is  an  impedi 
ment  to  other  kinds  of  lending ;  which,  by  confining 
the  resource  of  borrowing  to  a  particular  class,  leaves 
the  rest  of  the  community  more  destitute,  and, 
therefore,  more  exposed  to  the  extortions  of  usurers. 
As  the  profits  of  bank  stock  exceed  the  legal  rate  of 
interest,  the  possessors  of  money,  it  is  urged,  prefer 
investing  it  in  that  article  to  lending  it  at  this  rate; 
to  which  there  are  the  additional  motives  of  a  more 
prompt  command  of  the  capital,  and  of  more  fre 
quent  and  exact  returns,  without  trouble  or  per 
plexity  in  the  collection.  This  constitutes  the  second 
charge  which  has  been  enumerated. 

fact  on  which  this  charge  rests  is  not  to  be 
dmitted  without  several  qualifications — particularly 
n  reference  to  the  state  of  things  in  this  country. 

First.  The  great  bulk  of  the  stock  of  a  bank  will 
consist  of  the  funds  of  men  in  trade,  among  our 
selves,  and  moneyed  foreigners;  the  former  of  whom 
could  not  spare  their  capitals  out  of  their  reach,  to 
be  invested  in  loans  for  long  periods,  on  mortgages 
or  personal  security;  and  the  latter  of  whom  would 
not  be  willing  to  be  subjected  to  the  casualties,  de 
lays,  and  embarrassments  of  such  a  disposition  of 
their  money  in  a  distant  country. 

Secondly.  There  will  always  be  a  considerable  pro 
portion  of  those  who  are  properly  the  money-lenders 
of  a  country,  who,  from  that  spirit  of  caution  which 
usually  characterizes  this  description  of  men,  will  in 
cline  rather  to  invest  their  funds  in  mortgages  on 


400  Alexander  Hamilton 

real  estate,  than  in  the  stock  of  a  bank,  which  they 
are  apt  to  consider  as  a  more  precarious  security. 

These  considerations  serve,  in  a  material  degree, 
to  narrow  the  foundation  of  the  objection,  as  to  the 
point  of  fact.  But  there  is  a  more  satisfactory 
answer  to  it.  The  effect  supposed,  as  far  as  it  has 
existence,  is  temporary.  The  reverse  of  it  takes 
place  in  the  general  and  permanent  operation  of  the 
thing. 

The  capital  of  every  public  bank  will,  of  course, 
be  restricted  within  a  certain  defined  limit.  It  is 
the  province  of  legislative  prudence  so  to  adjust  this 
limit,  that,  while  it  will  not  be  too  contracted  for  the 
demand  which  the  course  of  business  may  create,  and 
for  the  security  which  the  public  ought  to  have  for 
the  solidity  of  the  paper  which  may  be  issued  by 
the  bank,  it  will  still  be  within  the  compass  of  the 
pecuniary  resources  of  the  community ;  so  that  there 
may  be  an  easy  practicability  of  completing  the  sub 
scriptions  to  it.  When  this  is  once  done,  the  sup 
posed  effect,  of  necessity,  ceases.  There  is  then  no 
longer  room  for  the  investment  of  any  additional 
capital.  Stock  may,  indeed,  change  hands,  by  one 
person  selling  and  another  buying;  but  the  money 
which  the  buyer  takes  out  of  the  common  mass  to 
purchase  the  stock,  the  seller  receives  and  restores 
to  it.  Hence,  the  future  surpluses  which  may  ac 
cumulate  must  take  their  natural  course,  and  lend 
ing  at  interest  must  go  on  as  if  there  were  no  such 
institution. 

It  must,  indeed,  flow  in  a  more  copious  stream. 
The  bank  furnishes  an  extraordinary  supply  for 


National  Bank  401 

borrowers,  within  its  immediate  sphere.  A  larger 
supply  consequently  remains  for  borrowers  elsewhere. 
In  proportion  as  the  circulation  of  the  bank  is  ex 
tended,  there  is  an  augmentation  of  the  aggregate 
mass  of  money  for  answering  the  aggregate  mass  of 
demand.  Hence  greater  facility  in  obtaining  it  for 
every  purpose. 

It  ought  not  to  escape  without  a  remark,  that,  as 
far  as  the  citizens  of  other  countries  become  adven 
turers  in  the  bank,  there  is  a  positive  increase  of  the 
gold  and  silver  of  the  country.  It  is  true,  that, 
from  this,  a  half  yearly  rent  is  drawn  back,  accruing 
from  the  dividends  upon  the  stock.  But  as  this  rent 
arises  from  the  employment  of  the  capital  by  our 
own  citizens,  it  is  probable  that  it  is  more  than  re 
placed  by  the  profits  of  that  employment.  It  is 
also  likely  that  a  part  of  it  is,  in  the  course  of  trade, 
converted  into  the  products  of  our  country;  and  it 
may  even  prove  an  incentive,  in  some  cases,  to 
emigration  to  a  country  in  which  the  character  of 
citizen  is  as  easy  to  be  acquired  as  it  is  estimable 
and  important.  This  view  of  the  subject  furnishes 
an  answer  to  an  objection  which  has  been  deduced 
from  the  circumstance  here  taken  notice  of,  namely, 
the  income  resulting  to  foreigners  from  the  part  of 
the  stock  owned  by  them,  which  has  been  repre 
sented  as  tending  to  drain  the  country  of  its  specie. 
In  this  objection  the  original  investment  of  the 
capital,  and  the  constant  use  of  it  afterwards,  seem 
both  to  have  been  overlooked. 

That  banks  furnish  temptations  to  overtrading,  is 
the  third  of  the  enumerated  objections.  This  must 

VOL.  III. — 26. 


402  Alexander  Hamilton 

mean,  that,  by  affording  additional  aids  to  mercantile 
enterprise,  they  induce  the  merchant  sometimes  to 
adventure  beyond  the  prudent  or  salutary  point. 
But  the  very  statement  of  the  thing  shows  that  the 
subject  of  the  charge  is  an  occasional  ill,  incident  to 
a  general  good.  Credit  of  every  kind  (as  a  species 
of  which  only  can  bank-lending  have  the  effect  sup 
posed)  must  be,  in  different  degrees,  chargeable  with 
the  same  inconvenience.  It  is  even  applicable  to 
gold  and  silver,  when  they  abound  in  circulation. 
But  would  it  be  wise,  on  this  account,  to  decry  the 
precious  metals,  to  root  out  credit,  or  to  proscribe 
the  means  of  that  enterprise  which  is  the  main 
spring  of  trade,  and  a  principal  source  of  national 
wealth,  because  it  now  and  then  runs  into  excesses, 
of  which  overtrading  is  one? 

If  the  abuses  of  a  beneficial  thing  are  to  determine 
its  condemnation,  there  is  scarcely  a  source  of  pub 
lic  prosperity  which  will  not  speedily  be  closed.  In 
every  case,  the  evil  is  to  be  compared  with  the  good; 
and  in  the  present  case  such  a  comparison  will  issue 
in  this,  that  the  new  and  increased  energies  derived 
to  commercial  enterprise,  from  the  aid  of  banks,  are 
a  source  of  general  profit  and  advantage,  which 
greatly  outweigh  the  partial  ills — the  overtrading  of 
a  few  individuals,  at  particular  times,  or  of  numbers 
in  particular  conjunctures. 

The  fourth  and  fifth  charges  may  be  considered 
together.  These  relate  to  the  aid  which  is  some 
times  afforded  by  banks  to  unskilful  adventurers  and 
fraudulent  traders.  These  charges,  also,  have  some 
degree  of  foundation,  though  far  less  than  has  been 


National  Bank  403 

pretended ;  and  they  add  to  the  instances  of  partial 
ills,  connected  with  more  extensive  and  overbal 
ancing  benefits. 

The  practice  of  giving  fictitious  credit  to  im 
proper  persons  is  one  of  those  evils  which  experience, 
guided  by  interest,  speedily  corrects.  The  bank  it 
self  is  in  so  much  jeopardy  of  being  a  sufferer  by  it, 
that  it  has  the  strongest  of  all  inducements  to  be  on 
its  guard.  It  may  not  only  be  injured  immediately  by 
the  delinquencies  of  the  persons  to  whom  such  credit 
is  given,  but  eventually  by  the  incapacities  of  others, 
whom  their  impositions  or  failures  may  have  ruined. 

Nor  is  there  much  danger  of  a  bank's  being  be 
trayed  into  this  error  from  want  of  information. 
The  directors  themselves  being,  for  the  most  part, 
selected  from  the  class  of  traders,  are  to  be  expected 
to  possess,  individually,  an  accurate  knowledge  of 
the  characters  and  situations  of  those  who  come 
within  that  description.  And  they  have,  in  addi 
tion  to  this,  the  course  of  dealing  of  the  persons 
themselves  with  the  bank  to  assist  their  judgment, 
which  is,  in  most  cases,  a  good  index  of  the  state 
in  which  those  persons  are.  The  artifices  and  shifts 
which  those  in  desperate  or  declining  circumstances 
are  obliged  to  employ,  to  keep  up  the  countenance 
which  the  rules  of  the  bank  require,  and  the  train 
of  their  connections,  are  so  many  prognostics,  not 
difficult  to  be  interpreted,  of  the  fate  which  awaits 
them.  Hence,  it  not  unfrequently  happens,  that 
banks  are  the  first  to  discover  the  unsoundness  of 
such  characters,  and,  by  withholding  credit,  to  an 
nounce  to  the  public  that  they  are  not  entitled  to  it. 


404  Alexander  Hamilton 

If  banks,  in  spite  of  every  precaution,  are  some 
times  betrayed  into  giving  a  false  credit  to  the  per 
sons  described,  they  more  frequently  enable  honest 
and  industrious  men,  of  small,  or,  perhaps,  of  no 
capital,  to  undertake  and  prosecute  business  with 
advantage  to  themselves  and  to  the  community; 
and  assist  merchants,  of  both  capital  and  credit, 
who  meet  with  fortuitous  and  unforeseen  shocks, 
which  might,  without  such  helps,  prove  fatal  to 
them  and  to  others,  to  make  head  against  their  mis 
fortunes,  and  finally  to  retrieve  their  affairs — cir 
cumstances  which  form  no  inconsiderable  encomium 
on  the  utility  of  banks. 

But  the  last  and  heaviest  charge  is  still  to  be  ex 
amined:  this  is,  that  banks  tend  to  banish  the  gold 
and  silver  of  the  country. 

The  force  of  this  objection  rests  upon  their  being 
an  engine  of  paper  credit,  which,  by  furnishing  a 
substitute  for  the  metals,  is  supposed  to  promote 
their  exportation.  It  is  an  objection  which,  if  it 
has  any  foundation,  lies  not  against  banks  peculiarly, 
but  against  every  species  of  paper  credit. 

The  most  common  answer  given  to  it  is,  that  the 
thing  supposed  is  of  little  or  of  no  consequence ;  that 
it  is  immaterial  what  serves  the  purpose  of  money, 
whether  paper,  or  gold  and  silver ;  that  the  effect  of 
both  upon  industry  is  the  same;  and  that  the  in 
trinsic  wealth  of  a  nation  is  to  be  measured,  not  by 
the  abundance  of  the  precious  metals  contained  in 
it,  but  by  the  quantity  of  the  productions  of  its 
labor  and  industry. 

This  answer  is  not  destitute  of  solidity,  though 


National  Bank  405 

not  entirely  satisfactory.  It  is  certain  that  the 
vivification  of  industry,  by  a  full  circulation,  with 
the  aid  of  a  proper  and  well-regulated  paper  credit, 
may  more  than  compensate  for  the  loss  of  a  part  of 
the  gold  and  silver  of  a  nation,  if  the  consequence 
of  avoiding  that  loss  should  be  a  scanty  or  defective 
circulation. 

But  the  positive  and  permanent  increase  or  de 
crease  of  the  precious  metals  in  the  country  can 
hardly  ever  be  a  matter  of  indifference.  As  the 
commodity  taken  in  lieu  of  every  other,  it  is  a  species 
of  the  most  effective  wealth;  and  as  the  money  of 
the  world,  it  is  of  great  concern  to  the  state,  that  it 
possess  a  sufficiency  of  it  to  face  any  demands  which 
the  protection  of  its  external  interest  may  create. 

The  objection  seems  to  admit  of  another  and  a 
more  conclusive  answer,  which  controverts  the  fact 
itself.  A  nation  that  has  no  mines  of  its  own  must 
derive  the  precious  metals  from  others;  generally 
speaking,  in  exchange  for  the  products  of  its  labor 
and  industry.  The  quantity  it  will  possess  will, 
therefore,  in  the  ordinary  course  of  things,  be  regu 
lated  by  the  favorable  or  unfavorable  balance  of  its 
trade ;  that  is,  by  the  proportion  between  its  abilities 
to  supply  foreigners,  and  its  wants  of  them — between 
the  amount  of  its  exportations  and  that  of  its  im 
portations.  Hence,  the  state  of  its  agriculture  and 
manufactures,  the  quantity  and  quality  of  its  labor 
and  industry,  must,  in  the  main,  influence  and  deter 
mine  the  increase  or  decrease  of  its  gold  and  silver. 

If  this  be  true,  the  inference  seems  to  be,  that 
well-constituted  banks  favor  the  increase  of  the 


406  Alexander  Hamilton 

precious  metals.  It  has  been  shown  that  they  aug 
ment,  in  different  ways,  the  active  capital  of  a 
country.  This  it  is  which  generates  employment— 
which  animates  and  expands  labor  and  industry. 
Every  addition  which  is  made  to  it,  by  contributing 
to  put  in  motion  a  greater  quantity  of  both,  tends  to 
create  a  greater  quantity  of  the  products  of  both; 
and,  by  furnishing  more  materials  for  exportation, 
conduces  to  a  favorable  balance  of  trade,  and,  con 
sequently,  to  the  introduction  and  increase  of  gold 
and  silver. 

This  conclusion  appears  to  be  drawn  from  solid 
premises.  There  are,  however,  objections  to  be 
made  to  it. 

It  may  be  said  that,  as  bank  paper  affords  a 
'substitute  for  specie,  it  serves  to  counteract  that 
rigorous  necessity  for  the  metals,  as  a  medium  of 
circulation,  which,  in  the  case  of  a  wrong  balance, 
might  restrain,  in  some  degree,  their  exportation; 
and  it  may  be  added  that,  from  the  same  cause,  in 
the  same  case,  it  would  retard  those  economical  and 
parsimonious  reforms  in  the  manner  of  living  which 
the  scarcity  of  money  is  calculated  to  produce,,  and 
which  might  be  necessary  to  rectify  such  wrong 
balance. 

There  is,  perhaps,  some  truth  in  both  these  observa 
tions;  but  they  appear  to  be  of  a  nature  rather  to 
form  exceptions  to  the  generality  of  the  conclusion, 
than  to  overthrow  it.  The  state  of  things  in  which 
the  absolute  exigencies  of  circulation  can  be  supposed 
to  resist,  with  any  effect,  the  urgent  demands  for 
specie  which  a  wrong  balance  of  trade  may  occasion. 


National  Bank  407 

presents  an  extrem-e  case.  And  a  situation  in  which 
a  too  expensive  manner  of  living  of  a  community, 
compared  with  its  means,  can  stand  in  need  of  a 
corrective,  from  distress  or  necessity,  is  one  which, 
perhaps,  rarely  results  but  from  extraordinary  and 
adventitious  causes — such,  for  example,  as  a  national 
revolution ;  which  unsettles  all  the  established  habits 
of  the  people,  and  inflames  the  appetite  for  extrava 
gance,  by  the  illusions  of  an  ideal  wealth,  engendered 
by  the  continual  multiplication  of  a  depreciating 
currency,  or  some  similar  cause.  There  is  a  good 
reason  to  believe  that,  where  the  laws  are  wise  and 
well  executed,  and  the  inviolability  of  property  and 
contracts  maintained,  the  economy  of  a  people  will, 
in  the  general  course  of  things,  correspond  with  its 
means. 

The  support  of  industry  is,  probably  in  every  case, 
of  more  consequence  towards  correcting  a  wrong 
balance  of  trade,  than  any  practicable  retrench 
ments  in  the  expenses  of  families  or  individuals; 
and  the  stagnation  of  it  would  be  likely  to  have 
more  effect  in  prolonging,  than  any  such  savings  in 
shortening,  its  continuance.  That  stagnation  is  a 
natural  consequence  of  an  inadequate  medium, 
which,  without  the  aid  of  bank  circulation,  would, 
in  the  cases  supposed,  be  severely  felt. 

It  also  deserves  notice  that,  as  the  circulation  is 
always  in  a  compound  ratio  to  the  fund  upon  which 
it  depends,  and  to  the  demand  for  it,  and  as  that 
fund  is  itself  affected  by  the  exportation  of  the  metals, 
there  is  no  danger  of  its  being  overstocked,  as  in  the 
case  of  paper  issued  at  the  pleasure  of  the  govern- 


408  Alexander  Hamilton 

ment,  or  of  its  preventing  the  consequences  of  any 
unfavorable  balance  from  being  sufficiently  felt  to 
produce  the  reforms  alluded  to,  as  far  as  circum 
stances  may  require  and  admit. 

Nothing  can  be  more  fallible  than  the  comparisons 
which  have  been  made  between  different  countries, 
to  illustrate  the  truth  of  the  position  under  con 
sideration.  The  comparative  quantity  of  gold  and 
silver  in  different  countries  depends  upon  an  infinite 
variety  of  facts  and  combinations,  all  of  which  ought 
to  be  known  in  order  to  judge  whether  the  existence 
or  non-existence  of  paper  currencies  has  any  share 
in  the  relative  proportions  they  contain.  The  mass 
and  value  of  the  productions  of  the  labor  and  in 
dustry  of  each,  compared  with  its  wants ;  the  nature 
of  its  establishments  abroad;  the  kind  of  wars  in 
which  it  is  usually  engaged,  the  relations  it  bears 
to  the  countries  which  are  the  original  possessors  of 
those  metals;  the  privileges  it  enjoys  in  their  trade; 
-  these,  and  a  number  of  other  circumstances,  are 
all  to  be  taken  into  the  account,  and  render  the  in 
vestigation  too  complex  to  justify  any  reliance  on 
the  vague  and  general  surmises  which  have  hitherto 
been  hazarded  on  the  point. 

In  the  foregoing  discussion,  the  objection  has  been 
considered  as  applying  to  the  permanent  expulsion 
and  diminution  of  the  metals.  Their  temporary  ex 
portation,  for  particular  purposes,  has  not  been  con 
templated.  This,  it  must  be  confessed,  is  facilitated 
by  banks,  from  the  faculty  they  possess  of  supplying 
their  place.  But  their  utility  is  in  nothing  more 
conspicuous  than  in  these  very  cases.  They  enable 


National  Bank  409 

the  government  to  pay  its  foreign  debts,  and  to 
answer  any  exigencies  which  the  external  concerns 
of  the  community  may  have  produced.  They  enable 
the  merchant  to  support  his  credit  (on  which  the 
prosperity  of  trade  depends),  when  special  circum 
stances  prevent  remittances  in  other  modes.  They 
enable  him  also  to  prosecute  enterprises  which 
ultimately  tend  to  an  augmentation  of  the  species 
of  wealth  in  question.  It  is  evident  that  gold  and 
silver  may  often  be  employed  in  procuring  com 
modities  abroad,  which,  in  a  circuitous  commerce, 
replace  the  original  fund,  with  considerable  addi 
tion.  But  it  is  not  to  be  inferred,  from  this  facility 
given  to  temporary  exportation,  that  banks,  which 
are  so  friendly  to  trade  and  industry,  are,  in  their 
general  tendency,  inimical  to  the  increase  of  the 
precious  metals. 

These  several  views  of  the  subject  appear  suffi 
cient  to  impress  a  full  conviction  of  the  utility  of 
banks,  and  to  demonstrate  that  they  are  of  great 
importance,  not  only  in  relation  to  the  administra 
tion  of  the  finances  but  in  the  general  system  of  the 
political  economy. 

The  judgment  of  many  concerning  them  has,  no 
doubt,  been  perplexed  by  the  misinterpretation  of 
appearances  which  were  to  be  ascribed  to  other 
causes.  The  general  devastation  of  personal  prop 
erty,  occasioned  by  the  late  war,  naturally  produced, 
on  the  one  hand,  a  great  demand  for  money,  and,  on  • 
the  other,  a  great  deficiency  of  it  to  answer  the  de 
mand.  Some  injudicious  laws,  which  grew  out  of 
the  public  distresses,  by  impairing  confidence,  and 


410  Alexander  Hamilton 

causing  a  part  of  the  inadequate  sum  in  the  country 
to  be  locked  up,  aggravated  the  evil.  The  dissipated 
habits  contracted  by  many  individuals  during  the 
war,  which,  after  the  peace,  plunged  them  into  ex 
penses  beyond  their  incomes;  the  number  of  ad 
venturers  without  capital,  and,  in  many  instances, 
without  information,  who  at  that  epoch  rushed  into 
trade,  and  were  obliged  to  make  any  sacrifice  to 
support  a  transient  credit;  the  employment  of  con 
siderable  sums  in  speculations  upon  the  public  debt, 
which,  from  its  unsettled  state,  was  incapable  of 
becoming  itself  a  substitute;  all  these  circum 
stances  concurring,  necessarily  led  to  usurious  bor 
rowing,  produced  most  of  the  inconveniences,  and 
were  the  true  causes  of  most  of  the  appearances 
which,  where  banks  were  established,  have  been  by 
some  erroneously  placed  to  their  account — a  mis 
take  which  they  might  easily  have  avoided  by  turn 
ing  their  eyes  toward  places  where  there  were  none, 
and  where,  nevertheless,  the  same  evils  would  have 
been  perceived  to  exist,  even  in  a  greater  degree 
than  where  those  institutions  had  obtained. 

These  evils  have  either  ceased  or  been  greatly 
mitigated.  Their  more  complete  extinction  may  be 
looked  for  from  that  additional  security  to  property 
which  the  Constitution  of  the  United  States  happily 
gives  (a  circumstance  of  prodigious  moment  in  the 
scale  both  of  public  and  private  prosperity);  from 
the  attraction  of  foreign  capital,  under  the  auspices 
of  that  security,  to  be  employed  upon  objects  and  in 
enterprises  for  which  the  state  of  this  country  opens 
a  wide  and  inviting  field ;  from  the  consistency  and 


National  Bank  411 

stability  which  the  public  debt  is  fast  acquiring,  as 
well  in  the  public  opinion  at  home  and  abroad,  as  in 
fact;  from  the  augmentation  of  capital  which  that 
circumstance  and  the  quarter-yearly  payment  of 
interest  will  afford;  and  from  the  more  copious  cir 
culation  which  will  be  likely  to  be  created  by  a 
well-constituted  national  bank. 

The  establishment  of  banks  in  this  country  seems 
to  be  recommended  by  reasons  of  a  peculiar  nature. 
Previously  to  the  Revolution,  circulation  was  in  a 
great  measure  carried  on  by  paper  emitted  by  the 
several  local  governments.  In  Pennsylvania  alone 
the  quantity  of  it  was  near  a  million  and  a  half  of 
dollars.  This  auxiliary  may  be  said  to  be  now  at  an 
end.  And  it  is  generally  supposed  that  there  has 
been,  for  some  time  past,  a  deficiency  of  circulating 
medium.  How  far  that  deficiency  is  to  be  con 
sidered  as  real  or  imaginary,  is  not  susceptible  of 
demonstration;  but  there  are  circumstances  and 
appearances  which,  in  relation  to  the  country  at 
large,  countenance  the  supposition  of  its  reality. 

The  circumstances  are,  besides  the  fact  just  men 
tioned  respecting  paper  emissions,  the  vast  tracts  of 
waste  land,  and  the  little  advanced  state  of  manu 
factures.  The  progressive  settlement  of  the  former, 
while  it  promises  ample  retribution  in  the  generation 
of  future  resources,  diminishes  or  obstructs,  in  the 
meantime,  the  active  wealth  of  the  country.  It  not 
only  draws  off  a  part  of  the  circulating  money,  and 
places  it  in  a  more  passive  state,  but  it  diverts  into 
its  own  channels  a  portion  of  that  species  of  labor 
and  industry  which  would  otherwise  be  employed  in 


412  Alexander  Hamilton 

furnishing  materials  for  foreign  trade,  and  which,  by 
contributing  to  a  favorable  balance,  would  assist 
the  introduction  of  specie.  In  the  early  periods  of 
new  settlements,  the  settlers  not  only  furnish  no 
surplus  for  exportation,  but  they  consume  a  part  of 
that  which  is  produced  by  the  labor  of  others.  The 
same  thing  is  a  cause  that  manufactures  do  not 
advance,  or  advance  slowly.  And  notwithstanding 
some  hypotheses  to  the  contrary,  there  are  many 
things  to  induce  a  suspicion  that  the  precious  metals 
will  not  abound  in  any  country  which  has  not  mines, 
or  variety  of  manufactures.  They  have  been  some 
times  acquired  by  the  sword ;  but  the  modern  system 
of  war  has  expelled  this  resource,  and  it  is  one  upon 
which  it  is  to  be  hoped  the  United  States  will  never 
be  inclined  to  rely. 

The  appearances  alluded  to  are:  Greater  preval- 
ency  of  direct  barter,  in  the  more  interior  districts 
of  the  country,  which,  however,  has  been  for  some 
time  past  gradually  lessening;  and  greater  difficulty 
generally  in  the  advantageous  alienation  of  im 
proved  real  estate,  which  also  has  of  late  diminished, 
but  is  still  seriously  felt  in  different  parts  of  the 
Union.  The  difficulty  of  getting  money,  which  has 
been  a  general  complaint,  is  not  added  to  the  num 
ber,  because  it  is  the  complaint  of  all  times,  and  one 
in  which  imagination  must  ever  have  too  great  scope 
to  permit  an  appeal  to  it. 

If  the  supposition  of  such  a  deficiency  be  in  any 
degree  well  founded,  and  some  aid  to  circulation  be 
desirable,  it  remains  to  inquire  what  ought  to  be  the 
nature  of  that  aid. 


National  Bank  413 

The  emitting  of  paper  money  by  the  authority  of 
the  government  is  wisely  prohibited  to  the  individual 
States  by  the  National  Constitution;  and  the  spirit 
of  that  prohibition  ought  not  to  be  disregarded 
by  the  Government  of  the  United  States.  Though 
paper  emissions,  under  a  general  authority,  might 
have  some  advantages  not  applicable,  and  be  free 
from  some  disadvantages  which  are  applicable,  to 
the  like  emissions  by  the  States,  separately,  yet  they 
are  of  a  nature  so  liable  to  abuse — and,  it  may  even 
be  affirmed,  so  certain  of  being  abused, — that  the 
wisdom  of  the  government  will  be  shown  in  never 
trusting  itself  with  the  use  of  so  seducing  and  dan 
gerous  an  expedient.  In  times  of  tranquillity  it 
might  have  no  ill  consequence, — it  might  even  per 
haps  be  managed  in  a  way  to  be  productive  of  good; 
but  in  great  and  trying  emergencies  there  is  almost 
a  moral  certainty  of  its  becoming  mischievous.  The 
stamping  of  paper  is  an  operation  so  much  easier 
than  the  laying  of  taxes,  that  a  government  in  the 
practice  of  paper  emissions  would  rarely  fail,  in  any 
such  emergency,  to  indulge  itself  too  far  in  the  em 
ployment  of  that  resource,  to  avoid,  as  much  as 
possible,  one  less  auspicious  to  present  popularity. 
If  it  should  not  even  be  carried  so  far  as  to  be  ren 
dered  an  absolute  bubble,  it  would  at  least  be  likely 
to  be  extended  to  a  degree  which  would  occasion 
an  inflated  and  artificial  state  of  things,  incompat 
ible  with  the  regular  and  prosperous  course  of  the 
political  economy. 

Among  other  material  differences  between  a  paper 
currency,  issued  by  the  mere  authority  of  govern- 


414  Alexander  Hamilton 

ment,  and  one  issued  by  a  bank,  payable  in  coin,  is 
this:  That,  in  the  first  case,  there  is  no  standard  to 
which  an  appeal  can  be  made,  as  to  the  quantity 
which  will  only  satisfy,  or  which  will  surcharge,  the 
circulation;  in  the  last,  that  standard  results  from 
the  demand.  If  more  should  be  issued  than  is 
necessary,  it  will  return  upon  the  bank.  Its  emis 
sions,  as  elsewhere  intimated,  must  always  be  in 
a  compound  ratio  to  the  fund  and  the  demand: 
whence  it  is  evident  that  there  is  a  limitation  in 
the  nature  of  the  thing;  while  the  discretion  of  the 
government  is  the  only  measure  of  the  extent  of  the 
emissions,  by  its  own  authority. 

This  consideration  further  illustrates  the  danger 
of  emissions  of  that  sort,  and  the  preference  which  is 
due  to  bank  paper. 

The  payment  of  the  interest  of  the  public  debt  at 
thirteen  different  places  is  a  weighty  reason,  peculiar 
to  our  immediate  situation,  for  desiring  a  bank  cir 
culation.  Without  a  paper,  in  general  currency, 
equivalent  to  gold  and  silver,  a  considerable  propor 
tion  of  the  specie  of  the  country  must  always  be 
suspended  from  circulation,  and  left  to  accumulate, 
preparatory  to  each  day  of  payment;  and  as  often 
as  one  approaches,  there  must  in  several  cases  be  an 
actual  transportation  of  the  metals,  at  both  expense 
and  risk,  from  their  natural  and  proper  reservoirs,  to 
distant  places.  This  necessity  will  be  felt  very  in 
juriously  to  the  trade  of  some  of  the  States,  and  will 
embarrass  not  a  little  the  operations  of  the  treasury 
in  those  States.  It  will  also  obstruct  those  nego 
tiations,  between  different  parts  of  the  Union,  by 


National  Bank  415 

the  instrumentality  of  treasury  bills,  which  have 
already  afforded  valuable  accommodations  to  trade 
in  general. 

Assuming  it,  then,  as  a  consequence,  from  what 
has  been  said,  that  a  national  bank  is  a  desirable  in 
stitution,  two  inquiries  emerge :  Is  there  no  such  in 
stitution  already  in  being,  which  has  a  claim  to  that 
character,  and  which  supersedes  the  propriety  or 
necessity  of  another?  If  there  be  none,  what  are  the 
principles  upon  wrhich  one  ought  to  be  established? 

There  are  at  present  three  banks  in  the  United 
States:  that  of  North  America,  established  in  the 
city  of  Philadelphia;  that  of  New  York,  established 
in  the  city  of  New  York ;  that  of  Massachusetts,  es 
tablished  in  the  town  of  Boston.  Of  these  three,  the 
first  is  the  only  one  which  has  at  any  time  had  a 
direct  relation  to  the  Government  of  the  United 
States. 

The  Bank  of  North  America  originated  in  a  reso 
lution  of  Congress  of  the  26th  of  May,  1781,  founded 
upon  a  proposition  of  the  Superintendent  of  Finance, 
which  was  afterwards  earned  into  execution  by  an 
ordinance  of  the  3ist  of  December  following,  en 
titled  "An  ordinance  to  incorporate  the  subscribers 
to  the  Bank  of  North  America." 

The  aid  afforded  to  the  United  States  by  this  in 
stitution,  during  the  remaining  period  of  the  war,  was 
of  essential  consequence;  and  its  conduct  towards 
them  since  the  peace  has  not  weakened  its  title  to 
their  patronage  and  favor.  So  far  its  pretensions  to 
the  character  in  question  are  respectable,  but  there 
are  circumstances  which  militate  against  them,  and 


4i6  Alexander  Hamilton 

considerations  which  indicate  the  propriety  of  an 
establishment  on  different  principles. 

The  directors  of  this  bank,  on  behalf  of  their  con 
stituents,  have  since  accepted,  and  acted  under,  a  new 
charter,  from  the  State  of  Pennsylvania,  materially 
variant  from  their  original  one,  and  which  so  narrows 
the  foundation  of  the  institution  as  to  render  it  an 
incompetent  basis  for  the  extensive  purposes  of  a 
national  bank. 

The  limit  assigned  by  the  ordinance  of  Congress 
to  the  stock  of  the  bank  is  ten  millions  of  dollars. 
The  last  charter  of  Pennsylvania  confines  it  to  two 
millions.  Questions  naturally  arise  whether  there 
be  not  a  direct  repugnancy  between  two  charters 
so  differently  circumstanced;  and  whether  the  ac 
ceptance  of  the  one  is  not  to  be  deemed  a  virtual 
surrender  of  the  other.  But  perhaps  it  is  neither  ad 
visable  nor  necessary  to  attempt  a  solution  of  them. 

There  is  nothing  in  the  acts  of  Congress  which 
imply  an  exclusive  right  in  the  institution  to  which 
they  relate,  except  during  the  term  of  the  war. 
There  is,  therefore,  nothing,  if  the  public  good  re 
quire  it,  which  prevents  the  establishment  of  an 
other.  It  may,  however,  be  incidentally  remarked, 
that  in  the  general  opinion  of  the  citizens  of  the 
United  States,  the  Bank  of  North  America  has  taken 
the  station  of  a  bank  of  Pennsylvania  only.  This 
is  a  strong  argument  for  a  new  institution,  or  for  a 
renovation  of  the  old,  to  restore  it  to  the  situation 
in  which  it  originally  stood  in  the  view  of  the  United 
States. 

But,  though  the  ordinance  of  Congress  contains 


National  Bank  417 

no  grant  of  exclusive  privileges,  there  may  be  room 
to  allege  that  the  Government  of  the  United  States 
ought  not,  in  point  of  candor  and  equity,  to  estab 
lish  any  rival  or  interfering  institution,  in  prejudice 
of  the  one  already  established,  especially  as  this  has, 
from  services  rendered,  well-founded  claims  to  pro 
tection  and  regard. 

The  justice  of  such  an  observation  ought,  within 
proper  bounds,  to  be  admitted.  A  new  establish 
ment  of  the  sort  ought  not  to  be  made  without 
cogent  and  sincere  reasons  of  public  good.  And,  in 
the  manner  of  doing  it,  every  facility  should  be  given 
to  a  consolidation  of  the  old  with  the  new,  upon 
terms  not  injurious  to  the  parties  concerned.  But 
there  is  no  ground  to  maintain  that,  in  a  case  in 
which  the  government  has  made  no  condition 
restricting  its  authority,  it  ought  voluntarily  to  re 
strict  it,  through  regard  to  the  interests  of  a  par 
ticular  institution,  when  those  of  the  State  dictate  a 
different  course,  especially,  too,  after  such  circum 
stances  have  intervened  as  characterize  the  actual 
situation  of  the  Bank  of  North  America. 

The  inducements  to  a  new  disposition  of  the  thing 
are  now  to  be  considered.  The  first  of  them  which 
occurs  is,  the,  at  least,  ambiguous  situation  in  which 
the  Bank  of  North  America  has  placed  itself  by  the 
acceptance  of  its  last  charter.  If  this  has  rendered 
it  the  mere  bank  of  a  particular  State,  liable  to  dis 
solution  at  the  expiration  of  fourteen  years,  to  which 
term  the  act  of  that  State  has  restricted  its  duration, 
it  would  be  neither  fit  nor  expedient  to  accept  it  as 
an  equivalent  for  a  bank  of  the  United  States. 


VOL    Ill—ay. 


4i 8  Alexander  Hamilton 

The  restriction  of  its  capital,  also,  which,  accord 
ing  to  the  same  supposition  cannot  be  extended  be 
yond  two  millions  of  dollars,  is  a  conclusive  reason 
for  a  different  establishment.  So  small  a  capital 
promises  neither  the  requisite  aid  to  government 
nor  the  requisite  security  to  the  community.  It 
may  answer  very  well  the  purposes  of  local  accom 
modation,  but  it  is  an  inadequate  foundation  for  a 
circulation  coextensive  with  the  United  States,  em 
bracing  the  whole  of  their  revenues,  and  affecting 
every  individual  into  whose  hands  the  paper  may 
come. 

And,  inadequate  as  such  a  capital  would  be  to  the 
essential  ends  of  a  national  bank,  it  is  liable  to  being 
rendered  still  more  so  by  that  principle  of  the  con 
stitution  of  the  Bank  of  North  America,  contained 
equally  in  its  old  and  in  its  new  charter,  which 
leaves  the  increase  of  the  actual  capital  at  any 
time  (now  far  short  of  the  allowed  extent)  to  the 
discretion  of  the  directors  or  stockholders.  It  is 
naturally  to  be  expected  that  the  allurements  of  an 
advanced  price  of  stock,  and  of  large  dividends,  may 
disincline  those  who  are  interested  to  an  extension 
of  capital,  from  which  they  will  be  apt  to  fear  a 
diminution  of  profits.  And  for  this  circumstance 
the  interest  and  accommodation  of  the  public  (as 
well  individually  as  collectively)  are  made  more 
subordinate  to  the  interest,  real  or  imagined,  of 
the  stockholders,  than  they  ought  to  be.  It  is  true 
that,  unless  the  latter  be  consulted,  there  can  be  no 
bank  (in  the  sense  at  least  in  which  institutions  of 
this  kind,  worthy  of  confidence,  can  be  established 


National  Bank  419 

in  this  country).  But,  it  does  not  follow  that  this 
alone  is  to  be  consulted,  or  that  it  even  ought  to  be 
paramount.  Public  utility  is  more  truly  the  object 
of  public  banks  than  private  profit.  And  it  is  the 
business  of  government  to  constitute  them  on  such 
principles  that,  while  the  latter  will  result  in  a  suf 
ficient  degree  to  afford  competent  motives  to  engage 
in  them,  the  former  be  not  made  subservient  to  it. 
To  effect  this,  a  principal  object  of  attention  ought 
to  be  to  give  free  scope  to  the  creation  of  an  ample 
capital,  and  with  this  view,  fixing  the  bounds  which 
are  deemed  safe  and  convenient,  to  leave  no  dis 
cretion  either  to  stop  short  of  them,  or  to  overpass 
them.  The  want  of  this  precaution  in  the  estab 
lishment  of  the  Bank  of  North  America  is  a  further 
and  an  important  reason  for  desiring  one  differently 
constituted. 

There  may  be  room  at  first  sight  for  a  supposition 
that,  as  the  profits  of  a  bank  will  bear  a  proportion 
to  the  extent  of  its  operations,  and  as  for  this  reason 
the  interest  of  the  stockholders  will  not  be  disad- 
vantageously  affected  by  any  necessary  augmenta 
tions  of  capital,  there  is  no  cause  to  apprehend  that 
they  will  be  indisposed  to  such  augmentations.  But 
most  men,  in  matters  of  this  nature,  prefer  the  cer 
tainties  they  enjoy,  to  probabilities  depending  on 
untried  experiments,  especially  when  these  promise 
rather  that  they  will  not  be  injured,  than  that  they 
will  be  benefited. 

From  the  influence  of  this  principle,  and  a  desire 
of  enhancing  its  profits,  the  directors  of  a  bank  will 
be  more  apt  to  overstrain  its  faculties,  in  an  attempt 


420  Alexander  Hamilton 

to  face  the  additional  demands  which  the  course  of 
business  may  create,  than  to  set  on  foot  new  sub 
scriptions,  which  may  hazard  a  diminution  of  the 
profits,  and  even  a  temporary  reduction  of  the  price 
of  stock. 

Banks  are  among  the  best  expedients  for  lowering 
the  rate  of  interest  in  a  country;  but,  to  have  this 
effect,  their  capitals  must  be  completely  equal  to  all 
the  demands  of  business,  and  such  as  will  tend  to 
remove  the  idea  that  the  accommodations  they 
afford  are  in  any  degree  favors — an  idea  very  apt  to 
accompany  the  parsimonious  dispensation  of  con 
tracted  funds.  In  this,  as  in  every  other  case,  the 
plenty  of  the  commodity  ought  to  beget  a  modera 
tion  of  price. 

The  want  of  a  principle  of  rotation  in  the  con 
stitution  of  the  Bank  of  North  America  is  another 
argument  for  a  variation  of  the  establishment:™ 
Scarcely  one  of  the  reasons  which  militate  against 
this  principle  in  the  constitution  of  a  country,  is 
applicable  to  that  of  a  bank ;  while  there  are  strong 
reasons  in  favor  of  it,  in  relation  to  the  one,  which 
do  not  apply  to  the  other.  The  knowledge  to  be 
derived  from  experience  is  the  only  circumstance 
common  to  both,  which  pleads  against  rotation  in 
the  directing  officers  of  a  bank. 

But  the  objects  of  the  government  of  a  nation, 
and  those  of  the  government  of  a  bank,  are  so  widely 
different,  as  greatly  to  weaken  the  force  of  that  con 
sideration  in  reference  to  the  latter.  Almost  every 
important  case  in  legislation  requires,  toward  a 
right  decision,  a  general  and  accurate  acquaintance 


National  Bank  421 

with  the  affairs  of  the  State,  and  habits  of  thinking 
seldom  acquired  but  from  a  familiarity  with  public 
concerns.  The  administration  of  a  bank,  on  the 
contrary,  is  regulated  by  a  few  simple  fixed  maxims, 
the  application  of  which  is  not  difficult  to  any  man 
of  judgment,  especially  if  instructed  in  the  prin 
ciples  of  trade.  It  is,  in  general,  a  constant  suc 
cession  of  the  same  details. 

But,  though  this  be  the  case,  the  idea  of  the  ad 
vantages  of  experience  is  not  to  be  slighted.  Room 
ought  to  be  left  for  the  regular  transmission  of 
official  information;  and  for  this  purpose,  the  head 
of  the  direction  ought  to  be  excepted  from  the  prin 
ciple  of  rotation.  With  this  exception,  and  with  the 
aid  of  the  information  of  the  subordinate  officers, 
there  can  be  no  danger  of  any  ill  effects  from 
want  of  experience  or  knowledge;  especially  as  the 
periodical  exclusion  ought  not  to  reach  the  whole  of 
the  directors  at  one  time. 

The  argument  in  favor  of  the  principle  of  rotation 
is  this :  that  by  lessening  the  danger  of  combinations 
among  the  directors,  to  make  the  institution  sub 
servient  to  party  views,  or  to  the  accommodation, 
preferably,  of  any  particular  set  of  men,  it  will  ren 
der  the  public  confidence  more  firm,  stable,  and 
unqualified. 

When  it  is  considered  that  the  directors  of  a  bank 
are  not  elected  by  the  great  body  of  the  community, 
in  which  a  diversity  of  views  will  naturally  prevail 
at  different  conjunctures,  but  by  a  small  and  select 
class  of  men,  among  whom  it  is  far  more  easy  to 
cultivate  a  steady  adherence  to  the  same  persons 


422  Alexander  Hamilton 

and  objects,  and  that  those  directors  have  it  in  their 
power  so  immediately  to  conciliate,  by  obliging  the 
most  influential  of  this  class,  it  is  easy  to  perceive 
that,  without  the  principle  of  rotation,  changes  in 
that  body  can  rarely  happen,  but  as  a  concession 
which  they  may  themselves  think  it  expedient  to 
make  to  public  opinion. 

The  continual  administration  of  an  institution  of 
this  kind,  by  the  same  persons,  will  never  fail,  with 
or  without  cause,  from  their  conduct,  to  excite  dis 
trust  and  discontent.  The  necessary  secrecy  of 
their  transactions  gives  unlimited  scope  to  imagina 
tion  to  infer  that  something  is  or  may  be  wrong. 
And  this  inevitable  mystery  is  a  solid  reason  for  in 
serting  in  the  constitution  of  a  bank  the  necessity 
of  a  change  of  men.  As  neither  the  mass  of  the 
parties  interested,  nor  the  public  in  general,  can  be 
permitted  to  be  witnesses  of  the  interior  manage 
ment  of  the  directors,  it  is  reasonable  that  both 
should  have  that  check  upon  their  conduct,  and 
that  security  against  the  prevalency  of  a  partial  or 
pernicious  system,  which  will  be  produced  by  the 
certainty  of  periodical  changes.  Such,  too,  is  the 
delicacy  of  the  credit  of  a  bank,  that  every  thing 
which  can  fortify  confidence  and  repel  suspicion, 
without  injuring  its  operations,  ought  carefully  to 
be  sought  after  in  its  formation. 

A  further  consideration  in  favor  of  a  change  is  the 
improper  rule  by  which  the  right  of  voting  for  di 
rectors  is  regulated  in  the  plan  upon  which  the  Bank 
of    North    America    was    originally    constituted— 
namely,  a  vote  for  each  share;    and  the  want  of  a 


National  Bank  423 

rule  in  the  last  charter,— unless  the  silence  of  it,  on 
that  point,  may  signify  that  every  stockholder  is  to 
have  an  equal  and  a  single  vote,  which  would  be  a 
rule  in  a  different  extreme,  not  less  erroneous.  It 
is  of  importance  that  a  rule  should  be  established  on 
this  head,  as  it  is  one  of  those  things  which  ought 
not  to  be  left  to  discretion;  and  it  is,  consequently, 
of  equal  importance  that  the  rule  should  be  a  proper 
one. 

A  vote  for  each  share  renders  a  combination  be 
tween  a  few  principal  stockholders,  to  monopolize 
the  power  and  benefits  of  the  bank,  too  easy.  An 
equal  vote  to  each  stockholder,  however  great  or 
small  his  interest  in  the  institution,  allows  not  that 
degree  of  weight  to  large  stockholders  which  it  is 
reasonable  they  should  have,  and  which,  perhaps, 
their  security  and  that  of  the  bank  require.  A 
prudent  mean  is  to  be  preferred.  A  conviction  of 
this  has  produced  a  by-law  of  the  corporation  of  the 
Bank  of  North  America,  which  evidently  aims  at 
such  a  mean.  But  a  reflection  arises  here,  that  a 
like  majority  with  that  which  enacted  this  law  may, 
at  any  moment,  repeal  it. 

The  last  inducement  which  shall  be  mentioned  is 
the  want  of  precautions  to  guard  against  a  foreign 
influence  insinuating  itself  into  the  direction  of  the 
bank.  It  seems  scarcely  reconcilable  with  due  cau 
tion  to  permit  that  any  but  citizens  should  be 
eligible  as  directors  of  a  national  bank,  or  that 
non-resident  foreigners  should  be  able  to  influence 
the  appointment  of  directors  by  the  votes  of  their 
proxies.  In  the  event,  however,  of  an  incorporation 


424  Alexander  Hamilton 

of  the  Bank  of  North  America  in  the  plan,  it  may  be 
necessary  to  qualify  this  principle,  so  as  to  leave  the 
right  of  foreigners,  who  now  hold  shares  of  its  stock, 
unimpaired;  but  without  the  power  of  transmitting 
the  privilege  in  question  to  foreign  alliances. 

It  is  to  be  considered  that  such  a  bank  is  not  a 
mere  matter  of  private  property,  but  a  political 
machine  of  the  greatest  importance  to  the  State. 

There  are  other  variations  from  the  constitution 
of  the  Bank  of  North  America  not  of  inconsiderable 
moment,  which  appear  desirable,  but  which  are  not 
of  magnitude  enough  to  claim  a  preliminary  discus 
sion.  These  will  be  seen  in  the  plan  which  will  be 
submitted  in  the  sequel. 

If  the  objections  which  have  been  stated  to  the 
constitution  of  the  Bank  of  North  America  are  ad 
mitted  to  be  well-founded,  they  will,  nevertheless, 
not  derogate  from  the  merit  of  the  main  design,  or 
of  the  services  which  that  bank  has  rendered,  or  of 
the  benefits  which  it  has  produced.  The  creation 
of  such  an  institution,  at  the  time  it  took  place,  was 
a  measure  dictated  by  wisdom.  Its  utility  has  been 
amply  evinced  by  its  fruits ;  American  independence 
owes  much  to  it.  And  it  is  very  conceivable  that 
reasons  of  the  moment  may  have  rendered  those 
features  in  it  inexpedient,  which  a  revision,  with  a 
permanent  view,  suggests  as  desirable. 

The  order  of  the  subject  leads  next  to  an  inquiry 
into  the  principles  upon  which  a  national  bank  ought 
to  be  organized. 

The  situation  of  the  United  States  naturally  in 
spires  a  wish  that  the  form  of  the  institution  could 


National  Bank  425 

admit  of  a  plurality  of  branches.  But  various  con 
siderations  discourage  from  pursuing  this  idea.  The 
complexity  of  such  a  plan  would  be  apt  to  inspire 
doubts,  which  might  deter  from  adventuring  in  it. 
And  the  practicability  of  a  safe  and  orderly  admin 
istration,  though  not  to  be  abandoned  as  desperate, 
cannot  be  made  so  manifest  in  perspective  as  to 
promise  the  removal  of  those  doubts,  or  to  justify 
the  government  in  adopting  the  idea  as  an  original 
experiment.  The  most  that  would  seem  advisable, 
on  this  point,  is  to  insert  a  provision  which  may  lead 
to  it  hereafter,  if  experience  shall  more  clearly  de 
monstrate  its  utility,  and  satisfy  those  who  may  have 
the  direction,  that  it  may  be  adopted  with  safety. 
It  is  certain  that  it  would  have  some  advantages, 
both  peculiar  and  important.  Besides  more  general 
accommodation,  it  would  lessen  the  danger  of  a  run 
upon  the  bank. 

The  argument  against  it  is,  that  each  branch  must 
be  under  a  distinct,  though  subordinate  direction, 
to  which  a  considerable  latitude  of  discretion  must, 
of  necessity,  be  intrusted.  And,  as  the  property  of 
the  whole  institution  would  be  liable  for  the  engage 
ments  of  each  part,  that  and  its  credit  would  be  at 
stake,  upon  the  prudence  of  the  directors  of  every 
part.  The  mismanagement  of  either  branch  might 
hazard  serious  disorder  in  the  whole. 

Another  wish,  dictated  by  the  particular  situation 
of  the  country,  is,  that  the  bank  could  be  so  con 
stituted  as  to  be  made  an  immediate  instrument  of 
loans  to  the  proprietors  of  land;  but  this  wish  also 
yields  to  the  difficulty  of  accomplishing  it.  Land  is, 


426  Alexander  Hamilton 

alone,  an  unfit  fund  for  a  bank  circulation.  If  the 
notes  issued  upon  it  were  not  to  be  payable  in  coin, 
on  demand,  or  at  a  short  date,  this  would  amount 
to  nothing  more  than  a  repetition  of  the  paper  emis 
sions,  which  are  now  exploded  by  the  general  voice. 
If  the  notes  are  to  be  payable  in  coin,  the  land  must 
first  be  converted  into  it  by  sale,  or  mortgage.  The 
difficulty  of  effecting  the  latter,  is  the  very  thing 
which  begets  the  desire  of  finding  another  resource; 
and  the  former  would  not  be  practicable  on  a  sudden 
emergency,  but  with  sacrifices  which  would  make 
the  cure  worse  than  the  disease.  Neither  is  the  idea 
of  constituting  the  fund  partly  of  coin  and  partly  of 
land,  free  from  impediments.  These  two  species  of 
property  do  not,  for  the  most  part,  unite  in  the  same 
hands.  Will  the  moneyed  man  consent  to  enter 
into  a  partnership  with  the  landholder,  by  which  the 
latter  will  share  in  the  profits  which  will  be  made  by 
the  money  of  the  former?  The  money,  it  is  evident, 
will  be  the  agent  or  efficient  cause  of  the  profits— 
the  land  can  only  be  regarded  as  an  additional 
security.  It  is  not  difficult  to  foresee,  that  a  union, 
on  such  terms,  will  not  readily  be  formed.  If  the 
landholders  are  to  procure  the  money  by  sale  or 
mortgage  of  a  part  of  their  lands,  this  they  can  as 
well  do  when  the  stock  consists  wholly  of  money,  as 
if  it  were  to  be  compounded  of  money  and  land. 

To  procure  for  the  landholders  the  assistance  of 
loans,  is  the  great  desideratum.  Supposing  other 
difficulties  surmounted,  and  a  fund  created,  com 
posed  partly  of  coin  and  partly  of  land,  yet  the 
benefit  contemplated  could  only  then  be  obtained 


National  Bank  427 

by  the  bank's  advancing  them  its  notes  for  the  whole, 
or  part,  of  the  value  of  the  lands  they  had  subscribed 
to  the  stock.  If  this  advance  was  small,  the  relief 
aimed  at  would  not  be  given;  if  it  was  large,  the 
quantity  of  notes  issued  would  be  a  cause  of  dis 
trust;  and,  if  received  at  all,  they  would  be  likely  to 
return  speedily  upon  the  bank  for  payment ;  which, 
after  exhausting  its  coin,  might  be  under  a  necessity 
of  turning  its  lands  into  money,  at  any  price  that 
could  be  obtained  for  them,  to  the  irreparable 
prejudice  of  the  proprietors. 

Considerations  of  public  advantage  suggest  a 
further  wish,  which  is — that  the  bank  could  be  es 
tablished  upon  principles  that  would  cause  the  pro 
fits  of  it  to  redound  to  the  immediate  benefit  of 
the  State.  This  is  contemplated  by  many  who 
speak  of  a  national  bank,  but  the  idea  seems  liable 
to  insuperable  objections.  To  attach  full  confidence 
to  an  institution  of  this  nature,  it  appears  to  be  an 
essential  ingredient  in  its  structure,  that  it  shall  be 
under  a  private  not  a  public  direction — under  the 
guidance  of  individual  interest,  not  of  public  policy; 
which  would  be  supposed  to  be,  and,  in  certain 
emergencies,  under  a  feeble  or  too  sanguine  adminis 
tration,  would  really  be,  liable  to  being  too  much 
influenced  by  public  necessity.  The  suspicion  of  this 
would,  most  probably,  be  a  canker  that  would  con 
tinually  corrode  the  vitals  of  the  credit  of  the  bank, 
and  would  be  most  likely  to  prove  fatal  in  those 
situations  in  which  the  public  good  would  require 
that  they  should  be  most  sound  and  vigorous.  It 
would,  indeed,  be  little  less  than  a  miracle,  should 


428  Alexander  Hamilton 

the  credit  of  the  bank  be  at  the  disposal  of  the  gov 
ernment,  if,  in  a  long  series  of  time,  there  was  not 
experienced  a  calamitous  abuse  of  it.  It  is  true, 
that  it  would  be  the  real  interest  of  the  government 
not  to  abuse  it;  its  genuine  policy  to  husband  and 
cherish  it  with  the  most  guarded  circumspection, 
as  an  inestimable  treasure.  But  what  government 
ever  uniformly  consulted  its  true  interests  in  oppo 
sition  to  the  temptations  of  momentary  exigencies? 
What  nation  was  ever  blessed  with  a  constant 
succession  of  upright  and  wise  administrators? 

The  keen,  steady,  and,  as  it  were,  magnetic  sense 
of  their  own  interest  as  proprietors,  in  the  directors 
of  a  bank,  pointing  invariably  to  its  true  pole — the 
prosperity  of  the  institution, — is  the  only  security 
that  can  always  be  relied  upon  for  a  careful  and 
prudent  administration.  It  is,  therefore,  the  only 
basis  on  which  an  enlightened,  unqualified,  and  per 
manent  confidence  can  be  expected  to  be  erected 
and  maintained. 

The  precedents  of  the  banks  established  in  several 
cities  of  Europe,  Amsterdam,  Hamburgh,  and  others, 
may  seem  to  militate  against  this  position.  With 
out  a  precise  knowledge  of  all  the  peculiarities  of 
their  respective  constitutions,  it  is  difficult  to  pro 
nounce  how  far  this  may  be  the  case.  That  of  Am 
sterdam,  however,  which  we  best  know,  is  rather 
under  a  municipal  than  a  governmental  direction. 
Particular  magistrates  of  the  city,  not  officers  of  the 
republic,  have  the  management  of  it.  It  is  also  a 
bank  of  deposit,  not  of  loan,  or  circulation;  conse 
quently,  less  liable  to  abuse,  as  well  as  less  useful. 


National  Bank  429 

Its  general  business  consists  in  receiving  money  for 
safe-keeping,  which,  if  not  called  for  within  a  certain 
time,  becomes  a  part  of  its  stock,  and  irreclaimable. 
But  a  credit  is  given  for  it  on  the  books  of  the  bank, 
which,  being  transferable,  answers  all  the  purposes 
of  money. 

The  directors  being  magistrates  of  the  city,  and 
the  stockholders  in  general  its  most  influential  citi 
zens,  it  is  evident  that  the  principle  of  private  in 
terest  must  be  prevalent  in  the  management  of  the 
bank.  And  it  is  equally  evident  that,  from  the  na 
ture  of  its  operations,  that  principle  is  less  essential 
to  it  than  to  an  institution  constituted  with  a  view 
to  the  accommodation  of  the  public  and  individuals, 
by  direct  loans  and  a  paper  circulation. 

As  far  as  may  concern  the  aid  of  the  bank,  within 
the  proper  limits,  a  good  government  has  nothing 
more  to  wish  for  than  it  will  always  possess,  though 
the  management  be  in  the  hands  of  private  in 
dividuals.  As  the  institution,  if  rightly  constituted, 
must  depend  for  its  renovation,  from  time  to  time, 
on  the  pleasure  of  the  government,  it  will  not  be 
likely  to  feel  a  disposition  to  render  itself,  by  its  con 
duct,  unworthy  of  public  patronage.  The  govern 
ment,  too,  in  the  administration  of  its  finances,  has 
it  in  its  power  to  reciprocate  benefits  to  the  bank,  of 
not  less  importance  than  those  which  the  bank 
affords  to  the  government,  and  which,  besides,  are 
never  unattended  with  an  immediate  and  adequate 
compensation.  Independent  of  these  more  particu 
lar  considerations,  the  natural  weight  and  influence 
of  a  government  will  always  go  far  towards  procuring 


430  Alexander  Hamilton 

a  compliance  with  its  desires;  and,  as  the  directors 
will  usually  be  composed  of  some  of  the  most  dis 
creet,  respectable,  and  well-informed  citizens,  it  can 
hardly  ever  be  difficult  to  make  them  sensible  of  the 
force  of  the  inducements  which  ought  to  stimulate 
their  exertions. 

It  will  not  follow,  from  what  has  been  said,  that 
the  state  may  not  be  a  holder  of  a  part  of  the  stock 
of  a  bank,  and  consequently  a  sharer  in  the  profits 
of  it.  It  will  only  follow  that  it  ought  not  to  desire 
any  participation  in  the  direction  of  it,  and,  there 
fore,  ought  not  to  own  the  whole  or  a  principal  part 
of  the  stock ;  for,  if  the  mass  of  the  property  should 
belong  to  the  public,  and  if  the  direction  of  it  should 
be  in  private  hands,  this  would  be  to  commit  the  in 
terests  of  the  state  to  persons  not  interested,  or  not 
enough  interested,  in  their  proper  management. 

There  is  one  thing,  however,  which  the  govern 
ment  owes  to  itself  and  the  community — at  least,  to 
all  that  part  of  it  who  are  not  stockholders — which 
is,  to  reserve  to  itself  a  right  of  ascertaining,  as  often 
as  may  be  necessary,  the  state  of  the  bank;  ex 
cluding,  however,  all  pretension  to  control.  This 
right  forms  an  article  in  the  primitive  constitution 
of  the  Bank  of  North  America;  and  its  propriety 
stands  upon  the  clearest  reasons.  If  the  paper  of  a 
bank  is  to  be  permitted  to  insinuate  itself  into  all  the 
revenues  and  receipts  of  a  country,  if  it  is  even  to  be 
tolerated  as  the  substitute  for  gold  and  silver  in  all 
the  transactions  of  business,  it  becomes,  in  either 
view,  a  national  concern  of  the  first  magnitude.  As 
such,  the  ordinary  rules  of  prudence  require  that 


National  Bank  431 

the  government  should  possess  the  means  of  ascer 
taining,  whenever  it  thinks  fit,  that  so  delicate  a 
trust  is  executed  with  fidelity  and  care.  A  right  of 
this  nature  is  not  only  desirable,  as  it  respects  the 
government,  but  it  ought  to  be  equally  so  to  all 
those  concerned  in  the  institution,  as  an  additional 
title  to  public  and  private  confidence,  and  as  a  thing 
which  can  only  be  formidable  to  practices  that  imply 
mismanagement.  The  presumption  must  always  be, 
that  the  characters  who  would  be  intrusted  with  the 
exercise  of  this  right,  on  behalf  of  the  government, 
will  not  be  deficient  in  the  discretion  which  it  may 
require;  at  least,  the  admitting  this  presumption 
cannot  be  deemed  too  great  a  return  of  confidence 
for  that  very  large  portion  of  it  which  the  govern 
ment  is  required  to  place  in  the  bank. 

Abandoning,  therefore,  ideas  which,  however  agree 
able  or  desirable,  are  neither  practicable  nor  safe,  the 
following  plan,  for  the  constitution  of  a  national  bank, 
is  respectfully  submitted  to  the  consideration  of  the 
House. 

1.  The  capital  stock  of  the  bank  shall  not  exceed 
ten   millions   of   dollars,    divided   into   twenty-five 
thousand   shares,    each   share   being  four  hundred 
dollars;    to  raise  which  sum,  subscriptions  shall  be 
opened  on  the  first  Monday  of  April  next,  and  shall 
continue  open  until  the  whole  shall  be  subscribed. 
Bodies  politic  as  well  as  individuals  may  subscribe. 

2.  The  amount  of  each  share  shall  be  payable, 
one  fourth  in  gold  and  silver  coin,  and  three  fourths 
in  that  part  of  the  public  debt  which,  according  to 
the  loan  proposed  by  the  act  making  provision  for 


432  Alexander  Hamilton 

the  debt  of  the  United  States,  shall  bear  an  accruing 
interest,  at  the  time  of  payment,  of  six  per  centum 
per  annum. 

3.  The  respective  sums  subscribed  shall  be  pay 
able  in  four  equal  parts,  as  well  specie  as  debt,  in 
succession,  and  at  the  distance  of  six  calendar  months 
from  each  other;  the  first  payment  to  be  made  at  the 
time  of  subscription.     If  there  shall  be  a  failure  in 
any  subsequent  payment,  the  party  failing  shall  lose 
the  benefit  of  any  dividend  which  may  have  accrued 
prior  to  the  time  for  making  such  payment,  and 
during  the  delay  of  the  same. 

4.  The  subscribers  to  the  bank,   and  their  suc 
cessors,  shall  be  incorporated,  and  shall  so  continue 
until  the  final  redemption  of  that  part  of  its  stock 
which  shall  consist  of  the  public  debt. 

5.  The  capacity  of  the  corporation  to  hold  real 
and  personal  estate  shall  be  limited  to  fifteen  mil 
lions  of  dollars,  including  the  amount  of  its  capital, 
or  original  stock.     The  lands  and  tenements  which 
it  shall  be  permitted  to  hold  shall  be  only  such  as 
shall  be  requisite  for  the  immediate  accommodation 
of  the  institution,  and  such  as  shall  have  been  bona 
fide  mortgaged  to  it  by  way  of  security,  or  conveyed 
to  it  in  satisfaction  of  debts  previously  contracted 
in  the  usual  course  of  its  dealings,  or  purchased  at 
sales  upon  judgments  which  shall  have  been  ob 
tained  for  such  debts. 

6.  The   totality   of  the   debts   of  the   company, 
whether  by  bond,  bill,  or  other  contract  (credits  for 
deposits  excepted),  shall  never  exceed  the  amount 
of  its  capital  stock.     In  case  of  excess,  the  directors, 


National  Bank  433 

under  whose  administration  it  shall  happen,  shall 
be  liable  for  it  in  their  private  or  separate  capacities. 
Those  who  may  have  dissented  may  excuse  them 
selves  from  this  responsibility,  by  immediately  giv 
ing  notice  of  the  fact,  and  their  dissent,  to  the 
President  of  the  United  States,  and  to  the  stock 
holders,  at  a  general  meeting,  to  be  called  by  the 
president  of  the  bank,  at  their  request. 

7.  The  company  may  sell  or  devise  its  lands  and 
tenements,  or  may  sell  the  whole  or  any  part  of  the 
public  debt,  whereof  its  stock  shall  consist;  but  shall 
trade  in  nothing  except  bills  of  exchange,  gold  and 
silver  bullion,  or  in  the  sale  of  goods  pledged  for 
money  lent ;  nor  shall  take  more  than  at  the  rate  of  six 
per  centum  per  annum,  upon  its  loans  or  discounts. 

8.  No  loan  shall  be  made  by  the  bank  for  the  use, 
or  on  account,   of  the  Government  of  the  United 
States,  or  of  either  of  them,  to  an  amount  exceeding 
fifty  thousand  dollars,  or  of  any  foreign  prince  or 
state,  unless  previously  authorized  by  a  law  of  the 
United  States. 

9.  The  stock  of  the  bank  shall  be  transferable, 
according  to  such  rules  as  shall  be  instituted  by  the 
company  in  that  behalf. 

10.  The  affairs  of  the  bank  shall  be  under  the 
management  of  twenty-five  directors,  one  of  whom 
shall  be  the  president;    and  there  shall  be,  on  the 
first  Monday  of  January,  in  each  year,  a  choice  of 
directors,  by  a  plurality  of  suffrages  of  the  stock 
holders,  to  serve  for  a  year.     The  directors,  at  their 
first  meeting  after  each  election,  shall  choose  one  of 
their  number  as  president. 


VOL.  III.  — 28 


434  Alexander  Hamilton 

11.  The  number  of  votes  to  which  each  stock 
holder  shall  be  entitled  shall  be  according  to  the 
number  of  shares  he  shall  hold,  in  the  proportions 
following — that  is  to  say:    For  one  share,  and  not 
more  than  two  shares,  one  vote ;  for  every  two  shares 
above  two,  and  not  exceeding  ten,  one  vote;    for 
every  four  shares   above   ten,   and  not  exceeding 
thirty,  one  vote;  for  every  six  shares  above  thirty, 
and  not  exceeding  sixty,  one  vote;  for  every  eight 
shares  above  sixty,  and  not  exceeding  one  hundred, 
one  vote ;  and  for  every  ten  shares  above  one  hund 
red,  one  vote ;  but  no  person,  copartnership,  or  body 
politic  shall  be  entitled  to  a  greater  number  than 
thirty  votes.     And,  after  the  first  election,  no  share 
or  shares  shall  confer  a  right  of  suffrage,  which  shall 
not  have  been  holden  three  calendar  months  previous 
to  the  day  of  election.     Stockholders  actually  resi 
dent  within  the  United  States,  and  none  other,  may 
vote  in  the  elections  by  proxy. 

12.  Not  more  than  three  fourths  of  the  directors 
in  office,  exclusive  of  the  president,  shall  be  eligible 
for  the  next  succeeding  year.     But  the  director  who 
shall  be  president  at  the  time  of  an  election,  may 
always  be  re-elected. 

13.  None  but  a  stockholder,  being  a  citizen  of  the 
United  States,  shall  be  eligible  as  a  director. 

14.  Any  number  of  stockholders  not  less  than 
sixty,  who  together  shall  be  proprietors  of  two  hund 
red  shares,  or  upward,   shall  have  power,  at  any 
time,  to  call  a  general  meeting  of  the  stockholders 
for  purposes  relative  to  the  institution;    giving  at 
least  six  weeks'  notice,  in  two  public  gazettes  of  the 


National  Bank  435 

place  where  the  bank  is  kept,  and  specifying  in  such 
notice  the  object  of  the  meeting. 

15.  In   case   of  the   death,   resignation,   absence 
from  the  United  States,  or  removal  of  a  director  by 
the  stockholders,  his  place  may  be  filled  by  a  new 
choice  for  the  remainder  of  the  year. 

1 6.  No  director  shall  be  entitled  to  any  emolu 
ment,  unless  the  same  shall  have  been  allowed  by 
the  stockholders  at  a  general  meeting.     The  stock 
holders  shall  make  such  compensation  to  the  presi 
dent,  for  his  extraordinary  attendance  at  the  bank, 
as  shall  appear  to  them  reasonable. 

17.  Not  less  than  seven  directors  shall  constitute 
a  board  for  the  transaction  of  business. 

1 8.  Every  cashier  or  treasurer,  before  he  enters  on 
the  duties  of  his  office,  shall  be   required  to  give 
bond,  with  two  or  more  sureties,  to  the  satisfaction 
of  the  directors,    in  a  sum  not  less  than  twenty 
thousand  dollars,  with  condition  for  his  good  be 
havior. 

19.  Half-yearly  dividends   shall  be  made   of  so 
much  of  the  profits  of  the  bank  as  shall  appear  to 
the  directors  advisable.     And,  once  in  every  three 
years,  the  directors  shall  lay  before  the  stockholders, 
at  a  general  meeting,  for  their  information,  an  exact 
arid  particular  statement  of  the  debts  which  shall 
have  remained  unpaid,  after  the  expiration  of  the 
original  credit,  for  a  period  of  treble  the  term  of  that 
credit,  and  of  the  surplus  of  profit,  if  any,  after  de 
ducting  losses  and  dividends. 

20.  The  bills  and  notes  of  the  bank,   originally 
made  payable,  or  which  shall  have  become  payable, 


436  Alexander  Hamilton 

on  demand,  in  gold  and  silver  coin,  shall  be  receivable 
in  all  payments  to  the  United  States. 

2 1 .  The  officer  at  the  head  of  the  Treasury  Depart 
ment  of  the  United  States  shall  be  furnished,  from 
time  to  time,  as  often  as  he  may  require,  not  exceed 
ing  once  a  week,  with  statements  of  the  amount  of 
the  capital  stock  of  the  bank,  and  of  the  debts  due 
to  the  same,  of  the  moneys  deposited  therein,  of  the 
notes  in  circulation,  and  of  the  cash  in  hand;    and 
shall  have  a  right  to  inspect  such  general  accounts  in 
the  books  of  the  bank  as  shall  relate  to  the  said  state 
ments;  provided  that  this  shall  not  be  construed  to 
imply  a  right  of  inspecting  the  account  of  any  private 
individual  or  individuals  with  the  bank. 

22.  No  similar  institution  shall  be  established  by 
any  future   act  of   the  United  States,  during  the 
continuance   of    the   one    hereby   proposed    to   be 
established. 

23.  It  shall  be  lawful  for  the  directors  of  the 
bank  to  establish  offices  wheresoever  they  shall  think 
fit,  within  the  United  States,  for  the  purposes  of 
discount  and  deposit  only,  and  upon  the  same  terms, 
and  in  the  same  manner,  as  shall  be  practised  at 
the  bank,  and  to  commit  the  management  of  the 
said  offices,  and  the  making  of  the  said  discounts, 
either  to  agents  specially  appointed  by  them,  or  to 
such  persons  as  may  be  chosen  by  the  stockholders 
residing  at  the  place  where  any  such  office  shall  be, 
under  such  agreements,  and  subject  to  such  regula 
tions,  as  they  shall  deem  proper,  not  being  contrary 
to  law,  or  to  the  constitution  of  the  bank. 

24.  And  lastly,  the  President  of  the  United  States 


National  Bank  437 

shall  be  authorized  to  cause  a  subscription  to  be 
made  to  the  stock  of  the  said  company,  on  behalf  of 
the  United  States,  to  an  amount  not  exceeding  two 
millions  of  dollars,  to  be  paid  out  of  the  moneys 
which  shall  be  borrowed  by  virtue  of  either  of  the 
acts,  the  one  entitled  "  An  act  making  provision  for 
the  debt  of  the  United  States,"  and  the  other  en 
titled  "An  act  making  provision  for  the  reduction  of 
the  public  debt";  borrowing  of  the  bank  an  equal 
sum,  to  be  applied  to  the  purposes  for  which  the 
said  moneys  shall  have  been  procured,  reimbursable 
in  ten  years,  by  equal  annual  instalments,  or  at  any 
time  sooner,  or  in  any  greater  proportions,  that  the 
Government  may  think  fit. 

The  reasons  for  the  several  provisions  contained 
in  the  foregoing  plan  have  been  so  far  anticipated, 
and  will,  for  the  most  part,  be  so  readily  suggested 
by  the  nature  of  those  provisions,  that  any  comments 
which  need  further  to  be  made  will  be  both  few  and 
concise. 

The  combination  of  a  portion  of  the  public  debt, 
in  the  formation  of  the  capital,  is  the  principal  thing 
of  which  an  explanation  is  requisite.  The  chief 
object  of  this  is  to  enable  the  creation  of  a  capital 
sufficiently  large  to  be  the  basis  of  an  extensive  cir 
culation,  and  an  adequate  security  for  it.  As  has 
been  elsewhere  remarked,  the  original  plan  of  the 
Bank  of  North  America  contemplated  a  capital  of  ten 
millions  of  dollars,  which  is  certainly  not  too  broad 
a  foundation  for  the  extensive  operations  to  which  a 
national  bank  is  destined.  But  to  collect  such  a 
sum  in  this  country,  in  gold  and  silver,  into  one 


438  Alexander  Hamilton 

depository,  may,  without  hesitation,  be  pronounced 
impracticable.  Hence  the  necessity  of  an  auxiliary, 
which  the  public  debt  at  once  presents. 

This  part  of  the  fund  will  always  be  ready  to  come 
in  aid  of  the  specie ;  it  will  more  and  more  command 
a  ready  sale;  and  can,  therefore,  expeditiously  be 
turned  into  coin,  if  an  exigency  of  the  bank  should 
at  any  time  require  it.  This  quality  of  prompt  con 
vertibility  into  coin  renders  it  an  equivalent  for  that 
necessary  agent  of  bank  circulation,  and  distin 
guishes  it  from  a  fund  in  land,  of  which  the  sale 
would  generally  be  far  less  compendious,  and  at 
great  disadvantage.  The  quarter-yearly  receipts  of 
interest  will  also  be  an  actual  addition  to  the  specie 
fund,  during  the  intervals  between  them  and  the 
half-yearly  dividends  of  profits.  The  objection  to 
combining  land  with  specie,  resulting  from  their  not 
being  generally  in  possession  of  the  same  persons, 
does  not  apply  to  the  debt,  which  will  always  be 
found  in  considerable  quantity  among  the  moneyed 
and  trading  people. 

The  debt  composing  part  of  the  capital,  besides  its 
collateral  effect  in  enabling  the  bank  to  extend  its 
operations,  and  consequently  to  enlarge  its  profits, 
will  produce  a  direct  annual  revenue  of  six  per 
centum  for  the  government,  which  will  enter  into 
the  half-yearly  dividends  received  by  the  stock 
holders. 

When  the  present  price  of  the  public  debt  is  con 
sidered,  and  the  effect  which  its  conversion  into 
bank  stock,  incorporated  with  a  specie  fund,  would, 
in  all  probability,  have  to  accelerate  its  rise  to  the 


National  Bank  439 

proper  point,  it  will  easily  be  discovered,  that  the 
operation  presents,  in  its  outset,  a  very  considerable 
advantage  to  those  who  may  become  subscribers; 
and  from  the  influence  which  that  rise  would  have 
on  the  general  mass  of  the  debt,  a  proportional  bene 
fit  to  all  the  public  creditors,  and,  in  a  sense  which 
has  been  more  than  once  adverted  to,  to  the  com 
munity  at  large. 

There  is  an  important  fact,  which  exemplifies  the 
fitness  of  the  public  debt  for  a  bank  fund,  and  which 
may  serve  to  remove  doubts  in  some  minds  on  this 
point:  it  is  this,  that  the  Bank  of  England,  in  its 
first  erection,  rested  wholly  on  that  foundation. 
The  subscribers  to  a  loan  to  government  of  one  mil 
lion  two  hundred  thousand  pounds  sterling  were  in 
corporated  as  a  bank,  of  which  the  debt,  created  by 
the  loan  and  the  interest  upon  it,  were  the  sole  fund. 
The  subsequent  augmentations  of  its  capital,  which 
now  amounts  to  between  eleven  and  twelve  millions 
of  pounds  sterling,  have  been  of  the  same  nature. 

The  confining  of  the  right  of  the  bank  to  contract 
debts  to  the  amount  of  its  capital  is  an  important 
precaution,  which  is  not  to  be  found  in  the  constitu 
tion  of  the  Bank  of  North  America,  and  which, 
while  the  fund  consists  wholly  of  coin,  would  be  a 
restriction  attended  with  inconveniences,  but  would 
be  free  from  any,  if  the  composition  of  it  should  be 
such  as  is  now  proposed.  The  restriction  exists  in 
the  establishment  of  the  Bank  of  England,  and,  as  a 
source  of  security,  is  worthy  of  imitation.  The  con 
sequence  of  exceeding  the  limit,  there,  is,  that  each 
stockholder  is  liable  for  the  excess,  in  proportion  to 


440  Alexander  Hamilton 

his  interest  in  the  bank.  When  it  is  considered  that 
the  directors  owe  their  appointments  to  the  choice 
of  the  stockholders,  a  responsibility  of  this  kind,  on 
the  part  of  the  latter,  does  not  appear  unreasonable ; 
but,  on  the  other  hand,  it  may  be  deemed  a  hardship 
upon  those  who  may  have  dissented  from  the  choice. 
And  there  are  many  among  us,  whom  it  might  per 
haps  discourage  from  becoming  concerned  in  the  in 
stitution.  These  reasons  have  induced  the  placing 
of  the  responsibility  upon  the  directors  by  whom  the 
limit  prescribed  should  be  transgressed. 

The  interdiction  of  loans  on  account  of  the  United 
States,  or  of  any  particular  State,  beyond  the  moder 
ate  sum  specified,  or  of  any  foreign  Power,  will  serve 
as  a  barrier  to  Executive  encroachments,  and  to 
combinations  inauspicious  to  the  safety,  or  contrary 
to  the  policy,  of  the  Union. 

The  limitation  of  the  rate  of  interest  is  dictated  by 
the  consideration,  that  different  rates  prevail  in  dif 
ferent  parts  of  the  Union;  and  as  the  operations  of 
the  bank  may  extend  through  the  whole,  some  rule 
seems  to  be  necessary.  There  is  room  for  a  question, 
whether  the  limitation  ought  not  rather  to  be  to 
five  than  to  six  per  cent.,  as  proposed.  It  may,  with 
safety,  be  taken  for  granted,  that  the  former  rate 
would  yield  an  ample  dividend,  perhaps  as  much  as 
the  latter,  by  the  extension  which  it  would  give  to 
business.  The  natural  effect  of  low  interest  is  to 
increase  trade  and  industry;  because  undertakings 
of  every  kind  can  be  prosecuted  with  greater  advan 
tage.  This  is  a  truth  generally  admitted;  but  it  is 
requisite  to  have  analyzed  the  subject  in  all  its  re- 


National  Bank  441 

lations,  to  be  able  to  form  a  just  conception  of  the 
extent  of  that  effect.  Such  an  analysis  cannot  but 
satisfy  an  intelligent  mind,  that  the  difference  of  one 
per  cent,  in  the  rate  at  which  money  may  be  had,  is 
often  capable  of  making  an  essential  change  for  the 
better  in  the  situation  of  any  country  or  place. 

Every  thing,  therefore,  which  tends  to  lower  the 
rate  of  interest,  is  peculiarly  worthy  of  the  cares  of 
legislators.  And  though  laws,  which  violently  sink 
the  legal  rate  of  interest  greatly  below  the  market 
level,  are  not  to  be  commended,  because  they  are 
not  calculated  to  answer  their  aim,  yet,  whatever 
has  a  tendency  to  effect  a  reduction,  without  violence 
to  the  natural  course  of  things,  ought  to  be  attended 
to  and  pursued.  Banks  are  among  the  means  most 
proper  to  accomplish  this  end;  and  the  moderation 
of  the  rate  at  which  their  discounts  are  made  is  a 
material  ingredient  towards  it;  with  which  their 
own  interest,  viewed  on  an  enlarged  and  permanent 
scale,  does  not  appear  to  clash. 

But,  as  the  most  obvious  ideas  are  apt  to  have 
greater  force  than  those  which  depend  on  complex 
and  remote  combinations,  there  would  be  danger 
that  the  persons  whose  funds  must  constitute  the 
stock  of  the  bank  would  be  diffident  of  the  suffi 
ciency  of  the  profits  to  be  expected,  if  the  rate  of 
loans  and  discounts  were  to  be  placed  below  the 
points  to  which  they  have  been  accustomed,  and 
might,  on  this  account,  be  indisposed  to  embarking 
in  the  plan.  There  is,  it  is  true,  one  reflection, 
which,  in  regard  to  men,  actively  engaged  in  trade, 
ought  to  be  a  security  against  this  danger;  it  is  this: 


442  Alexander  Hamilton 

That  the  accommodations  which  they  might  derive 
in  the  way  of  their  business,  at  a  low  rate,  would 
more  than  indemnify  them  for  any  difference  in  the 
dividend,  supposing  even  that  some  diminution  of 
it  were  to  be  the  consequence.  But,  upon  the  whole, 
the  hazard  of  contrary  reasoning  among  the  mass  of 
moneyed  men  is  a  powerful  argument  against  the 
experiment.  The  institutions  of  the  kind  already 
existing  add  to  the  difficulty  of  making  it.  Mature 
reflection  and  a  large  capital  may,  of  themselves, 
lead  to  the  desired  end. 

The  last  thing  which  requires  any  explanatory 
remark  is,  the  authority  proposed  to  be  given  to  the 
President,  to  subscribe  the  amount  of  two  millions 
of  dollars  on  account  of  the  public.  The  main  de 
sign  of  this  is,  to  enlarge  the  specie  fund  of  the  bank, 
and  to  enable  it  to  give  a  more  early  extension  to  its 
operations.  Though  it  is  proposed  to  borrow  with 
one  hand  what  is  lent  with  the  other,  yet  the  dis 
bursement  of  what  is  borrowed  will  be  progressive, 
and  bank-notes  may  be  thrown  into  circulation,  in 
stead  of  the  gold  and  silver.  Besides,  there  is  to  be 
an  annual  reimbursement  of  a  part  of  the  sum  bor 
rowed,  which  will  finally  operate  as  an  actual  in 
vestment  of  so  much  specie.  In  addition  to  the 
inducements  to  this  measure,  which  result  from 
the  general  interest  of  the  government  to  enlarge  the 
sphere  of  the  utility  of  the  bank,  there  is  this  more 
particular  consideration,  to  wit:  That,  as  far  as  the 
dividend  on  the  stock  shall  exceed  the  interest  paid 
on  the  loan,  there  is  a  positive  profit. 

The  Secretary  begs  leave  to  conclude  with  this 


National  Bank  443 

general  observation:  That,  if  the  Bank  of  North 
America  shall  come  forward  with  any  propositions 
which  have  for  their  objects,  the  engrafting  upon 
that  institution,  the  characteristics  which  shall  ap 
pear  to  the  Legislature  necessary  to  the  due  extent 
and  safety  of  a  national  bank,  there  are,  in  his 
judgment,  weighty  inducements  to  giving  every 
reasonable  facility  to  the  measure.  Not  only  the  pre 
tensions  of  that  institution,  from  its  original  relation 
to  the  Government  of  the  United  States,  and  from 
the  services  it  has  rendered,  are  such  as  to  claim  a 
disposition  favorable  to  it,  if  those  who  are  inter 
ested  in  it  are  willing,  on  their  part,  to  place  it  on  a 
footing  satisfactory  to  the  government,  and  equal 
to  the  purposes  of  a  bank  of  the  United  States,  but 
its  co-operation  would  materially  accelerate  the  ac 
complishment  of  the  great  object,  and  the  collision, 
which  might  otherwise  arise,  might,  in  a  variety 
of  ways,  prove  equally  disagreeable  and  injurious. 
The  incorporation  or  union  here  contemplated  may 
be  effected  in  different  modes,  under  the  auspices  of 
an  act  of  the  United  States,  if  it  shall  be  desired  by 
the  Bank  of  North  America,  upon  terms  which  shall 
appear  expedient  to  the  government. 

All  which  is  humbly  submitted. 

ALEXANDER  HAMILTON, 

Secretary  of  the  Treasury. 


WASHINGTON    TO    HAMILTON 
OTR.  PHILADELPHIA,  February  16,  1791. 

An  act  to  incorporate  the  subscribers  to  the  Bank  of 
the  United  States  is  now  before  me  for  consideration. 


444  Alexander  Hamilton 

The  constitutionality  of  it  is  objected  to.  It  therefore 
becomes  more  particularly  my  duty  to  examine  the  ground 
on  which  the  objection  is  built.  As  a  means  of  investiga 
tion,  I  have  called  upon  the  Attorney-General  of  the 
United  States,  in  whose  line  it  seemed  more  particularly 
to  be,  for  his  official  examination  and  opinion.  His  re 
port  is,  that  the  Constitution  does  not  warrant  the  act.  I 
then  applied  to  the  Secretary  of  State  for  his  sentiments 
on  this  subject.  These  coincide  with  the  Attorney- 
General's  ;  and  the  reasons  for  their  opinions  having  been 
submitted  in  writing,  I  now  require,  in  like  manner, 
yours  on  the  validity  and  propriety  of  the  above-recited 
act;  and,  that  you  may  know  the  points  on  which  the 
Secretary  of  State  and  the  Attorney-General  dispute  the 
constitutionality  of  the  act,  and  that  I  may  be  fully  pos 
sessed  of  the  arguments  for  and  against  the  measure, 
before  I  express  any  opinion  of  my  own,  I  give  you  an 
opportunity  of  examining  and  answering  the  objections 
contained  in  the  enclosed  papers.  I  require  the  return  of 
them  when  your  own  sentiments  are  handed  to  me  (which 
I  wish  may  be  as  soon  as  is  convenient) ;  and  further,  that 
no  copies  of  them  be  taken,  as  it  is  for  my  own  satisfac 
tion  they  have  been  called  for. 


HAMILTON   TO   WASHINGTON 

Monday. 

The  Secretary  of  the  Treasury  presents  his  re 
spects  to  the  President  of  the  United  States,  to  re 
quest  his  indulgence  for  not  having  yet  furnished  his 
reasons  on  a  certain  point.  He  has  been  ever  since 
sedulously  engaged  in  it,  but  finds  it  will  be  im 
possible  to  complete  it  before  Tuesday  evening  or 


National  Bank  445 

Wednesday  morning  early.     He  is  anxious  to  give 
the  point  a  thorough  examination. 


HAMILTON   TO    WASHINGTON 

The  Secretary  of  the  Treasury  presents  his  re 
spects  to  the  President,  and  sends  him  the  opinion 
required,  which  occupied  him  the  greatest  part  of 
last  night. 

The  bill  for  extending  the  time  of  opening  sub 
scriptions  passed  yesterday  unanimously  to  an  order 
for  engrossing. 

Opinion  as  to  the  Constitutionality  of  the  Bank  of  the 
United  States 

February  23,  1791. 

The  Secretary  of  the  Treasury  having  perused 
with  attention  the  papers  containing  the  opinions  of 
the  Secretary  of  State  and  the  Attorney-General, 
concerning  the  constitutionality  of  the  bill  for  estab 
lishing  a  national  bank,  proceeds,  according  to  the 
order  of  the  President,  to  submit  the  reasons  which 
have  induced  him  to  entertain  a  different  opinion. 

It  will  naturally  have  been  anticipated,  that  in 
performing  this  task  he  would  feel  uncommon  so 
licitude.  Personal  considerations  alone,  arising  from 
the  reflection  that  the  measure  originated  with  him, 
would  be  sufficient  to  produce  it.  The  sense  which 
he  has  manifested  of  the  great  importance  of  such  an 
institution  to  the  successful  administration  of  the 
department  under  his  particular  care,  and  an  ex 
pectation  of  serious  ill  consequences  to  result  from 


446  Alexander  Hamilton 

a  failure  of  the  measure,  do  not  permit  him  to  be 
without  anxiety  on  public  accounts.  But  the  chief 
solicitude  arises  from  a  firm  persuasion,  that  prin 
ciples  of  construction  like  those  espoused  by  the 
Secretary  of  State  and  the  Attorney-General  would 
be  fatal  to  the  just  and  indispensable  authority  of 
the  United  States. 

In  entering  upon  the  argument,  it  ought  to  be 
premised  that  the  objections  of  the  Secretary  of 
State  and  the  Attorney-General  are  founded  on  a 
general  denial  of  the  authority  of  the  United  States 
to  erect  corporations.  The  latter,  indeed,  expressly 
admits,  that  if  there  be  anything  in  the  bill  which  is 
not  warranted  by  the  Constitution,  it  is  the  clause 
of  incorporation. 

Now  it  appears  to  the  Secretary  of  the  Treasury 
that  this  general  principle  is  inherent  in  the  very 
definition  of  government,  and  essential  to  every  step 
of  the  progress  to  be  made  by  that  of  the  United 
States,  namely:  That  every  power  vested  in  a  gov 
ernment  is  in  its  nature  sovereign,  and  includes,  by 
force  of  the  term,  a  right  to  employ  all  the  means 
requisite  and  fairly  applicable  to  the  attainment  of 
the  ends  of  such  power,  and  which  are  not  precluded 
by  restrictions  and  exceptions  specified  in  the  Con 
stitution,  or  not  immoral,  or  not  contrary  to  the 
essential  ends  of  political  society.1 

This  principle,  in  its  application  to  government  in 
general,  would  be  admitted  as  an  axiom ;  and  it  will 
be  incumbent  upon  those  who  may  incline  to  deny 

1  This  is  the  beginning  of  the  argument  in  favor  of  the  implied  powers 
of  the  Constitution  which  Hamilton  was  the  first  to  evoke. 


National  Bank  447 

it,  to  prove  a  distinction,  and  to  show  that  a  rule 
which,  in  the  general  system  of  things,  is  essential  to 
the  preservation  of  the  social  order,  is  inapplicable 
to  the  United  States. 

The  circumstance  that  the  powers  of  sovereignty 
are  in  this  country  divided  between  the  National  and 
State  governments,  does  not  afford  the  distinction 
required.  It  does  not  follow  from  this,  that  each  of 
the  portion  of  powers  delegated  to  the  one  or  to  the 
other,  is  not  sovereign  with  regard  to  its  proper  ob 
jects.  It  will  only  follow  from  it,  that  each  has  sov 
ereign  power  as  to  certain  things,  and  not  as  to  other 
things.  To  deny  that  the  Government  of  the  United 
States  has  sovereign  power,  as  to  its  declared  pur 
poses  and  trusts,  because  its  power  does  not  extend 
to  all  cases,  would  be  equally  to  deny  that  the  State 
governments  have  sovereign  power  in  any  case,  be 
cause  their  power  does  not  extend  to  every  case. 
The  tenth  section  of  the  first  article  of  the  Constitu 
tion  exhibits  a  long  list  of  very  important  things 
which  they  may  not  do.  And  thus  the  United 
States  would  furnish  the  singular  spectacle  of  a 
political  society  without  sovereignty,  or  of  a  people 
governed,  without  government. 

If  it  would  be  necessary  to  bring  proof  to  a  pro 
position  so  clear,  as  that  which  affirms  that  the 
powers  of  the  Federal  Government,  as  to  its  objects, 
were  sovereign,  there  is  a  clause  of  its  Constitution 
which  would  be  decisive.  It  is  that  which  declares 
that  the  Constitution,  and  the  laws  of  the  United 
States  made  in  pursuance  of  it,  and  all  treaties  made, 
or  which  shall  be  made,  under  their  authority,  shall 


448  Alexander  Hamilton 

be  the  supreme  law  of  the  land.  The  power  which 
can  create  the  supreme  law  of  the  land  in  any  case,  is 
doubtless  sovereign  as  to  such  case. 

This  general  and  indisputable  principle  puts  at 
once  an  end  to  the  abstract  question,  whether  the 
United  States  have  power  to  erect  a  corporation; 
that  is  to  say,  to  give  a  legal  or  artificial  capacity  to 
one  or  more  persons,  distinct  from  the  natural.  For 
it  is  unquestionably  incident  to  sovereign  power  to 
erect  corporations,  and  consequently  to  that  of  the 
United  States,  in  relation  to  the  objects  intrusted  to 
the  management  of  the  government.  The  difference 
is  this:  where  the  authority  of  the  government  is 
general,  it  can  create  corporations  in  all  cases;  where 
it  is  confined  to  certain  branches  of  legislation,  it  can 
create  corporations  only  in  those  cases. 

Here,  then,  as  far  as  concerns  the  reasonings  of 
the  Secretary  of  State  and  the  Attorney- General,  the 
affirmative  of  the  constitutionality  of  the  bill  might 
be  permitted  to  rest.  It  will  occur  to  the  President, 
that  the  principle  here  advanced  has  been  untouched 
by  either  of  them. 

For  a  more  complete  elucidation  of  the  point, 
nevertheless,  the  arguments  which  they  had  used 
against  the  power  of  the  government  to  erect  cor 
porations,  however  foreign  they  are  to  the  great  and 
fundamental  rule  which  has  been  stated,  shall  be 
particularly  examined.  And  after  showing  that 
they  do  not  tend  to  impair  its  force,  it  shall  also  be 
shown  that  the  power  of  incorporation,  incident  to 
the  government  in  certain  cases,  does  fairly  extend 
to  the  particular  case  which  is  the  object  of  the  bill. 


National  Bank  449 

The  first  of  these  arguments  is,  that  the  founda 
tion  of  the  Constitution  is  laid  on  this  ground: 
"  That  all  powers  not  delegated  to  the  United  States 
by  the  Constitution,  nor  prohibited  by  it  to  the 
States,  are  reserved  to  the  States,  or  to  the  people." 
Whence  it  is  meant  to  be  inferred,  that  Congress  can 
in  no  case  exercise  any  power  not  included  in  those 
enumerated  in  the  Constitution.  And  it  is  affirmed, 
that  the  power  of  erecting  a  corporation  is  not  in 
cluded  in  any  of  the  enumerated  powers. 

The  main  proposition  here  laid  down,  in  its  true 
signification,  is  not  to  be  questioned.  It  is  nothing 
more  than  a  consequence  of  this  republican  maxim, 
that  all  government  is  a  delegation  of  power.  But 
how  much  is  delegated  in  each  case  is  a  question  of 
fact,  to  be  made  out  by  fair  reasoning  and  construc 
tion,  upon  the  particular  provisions  of  the  Con 
stitution,  taking  as  guides  the  general  principles  and 
general  ends  of  governments. 

It  is  not  denied  that  there  are  implied,  as  well 
as  express  powers,  and  that  the  former  are  as  ef 
fectually  delegated  as  the  latter.  And  for  the  sake 
of  accuracy  it  shall  be  mentioned  that  there  is  an 
other  class  of  powers,  which  may  be  properly  de 
nominated  resulting  powers.  It  will  not  be  doubted 
that  if  the  United  States  should  make  a  conquest  of 
any  of  the  territories  of  its  neighbors,  they  would 
possess  sovereign  jurisdiction  over  the  conquered 
territory.  This  would  be  rather  a  result  from  the 
whole  mass  of  the  powers  of  the  government,  and 
from  the  nature  of  political  society,  than  a  conse 
quence  of  either  of  the  powers  specially  enumerated. 


VOL.  III.— 29. 


450  Alexander  Hamilton 

But  be  this  as  it  may,  it  furnishes  a  striking  il 
lustration  of  the  general  doctrine  contended  for;  it 
shows  an  extensive  case,  in  which  a  power  of  erecting 
corporations  is  either  implied  in,  or  would  result 
from,  some  or  all  of  the  powers  vested  in  the  Na 
tional  Government.  The  jurisdiction  acquired  over 
such  conquered  country  would  certainly  be  com 
petent  to  any  species  of  legislation. 

To  return : — It  is  conceded  that  implied  powers  are 
to  be  considered  as  delegated  equally  with  express 
ones.  Then  it  follows,  that  as  a  power  of  erecting  a 
corporation  may  as  well  be  implied  as  any  other 
thing,  it  may  as  well  be  employed  as  an  instrument 
or  means  of  carrying  into  execution  any  of  the  speci 
fied  powers,  as  any  other  instrument  or  means  what 
ever.  The  only  question  must  be  in  this,  as  in  every 
other  case,  whether  the  means  to  be  employed,  or, 
in  this  instance,  the  corporation  to  be  erected,  has 
a  natural  relation  to  any  of  the  acknowledged  ob 
jects  or  lawful  ends  of  the  government.  Thus  a 
corporation  may  not  be  erected  by  Congress  for 
superintending  the  police  of  the  city  of  Philadelphia, 
because  they  are  not  authorized  to  regulate  the 
police  of  that  city.  But  one  may  be  erected  in  rela 
tion  to  the  collection  of  taxes,  or  to  the  trade  with 
foreign  countries,  or  to  the  trade  between  the  States, 
or  with  the  Indian  tribes ;  because  it  is  the  province 
of  the  Federal  Government  to  regulate  those  objects, 
and  because  it  is  incident  to  a  general  sovereign  or 
legislative  power  to  regulate  a  thing,  to  employ  all  the 
means  which  relate  to  its  regulation  to  the  best  and 
greatest  advantage. 


National  Bank  451 

A  strange  fallacy  seems  to  have  crept  into  the 
manner  of  thinking  and  reasoning  upon  this  subject. 
Imagination  appears  to  have  been  unusually  busy 
concerning  it.  An  incorporation  seems  to  have  been 
regarded  as  some  great  independent  substantive  thing; 
as  a  political  end  of  peculiar  magnitude  and  moment ; 
whereas  it  is  truly  to  be  considered  as  a  quality, 
capacity,  or  means  to  an  end.  Thus  a  mercantile 
company  is  formed,  with  a  certain  capital,  for  the 
purpose  of  carrying  on  a  particular  branch  of  busi 
ness.  Here  the  business  to  be  prosecuted  is  the  end. 
The  association  in  order  to  form  the  requisite  capital, 
is  the  primary  mean.  Suppose  that  an  incorpora 
tion  were  added  to  this,  it  would  only  be  to  add  a 
new  quality  to  that  association,  to  give  it  an  artificial 
capacity,  by  which  it  would  be  enabled  to  prosecute 
the  business  with  more  safety  and  convenience. 

That  the  importance  of  the  power  of  incorpora 
tion  has  been  exaggerated,  leading  to  erroneous  con 
clusions,  will  further  appear  from  tracing  it  to  its 
origin.  The  Roman  law  is  the  source  of  it,  according 
to  which  a  voluntary  association  of  individuals,  at 
any  time,  or  for  any  purpose,  was  capable  of  pro 
ducing  it.  In  England,  whence  our  notions  of  it  are 
immediately  borrowed,  it  forms  part  of  the  execut 
ive  authority,  and  the  exercise  of  it  has  been  often 
delegated  by  that  authority.  Whence,  therefore,  the 
ground  of  the  supposition  that  it  lies  beyond  the 
reach  of  all  those  very  important  portions  of  sover 
eign  power,  legislative  as  well  as  executive,  which 
belong  to  the  Government  of  the  United  States? 

Through  this  mode  of  reasoning  respecting  the 


452  Alexander  Hamilton 

right  of  employing  all  the  means  requisite  to  the 
execution  of  the  specified  powers  of  the  government, 
it  is  to  be  objected,  that  none  but  necessary  and 
proper  means  are  to  be  employed ;  and  the  Secretary 
of  State  maintains,  that  no  means  are  to  be  con 
sidered  necessary  but  those  without  which  the  grant 
of  the  power  would  be  nugatory.  Nay,  so  far  does 
he  go  in  his  restrictive  interpretation  of  the  word, 
as  even  to  make  the  case  of  necessity  which  shall 
warrant  the  constitutional  exercise  of  the  power  to 
depend  on  casual  and  temporary  circumstances;  an 
idea  which  alone  refutes  the  construction.  The 
expediency  of  exercising  a  particular  power,  at  a 
particular  time,  must,  indeed,  depend  on  circum 
stances  ;  but  the  constitutional  right  of  exercising  it 
must  be  uniform  and  invariable,  the  same  to-day  as 
to-morrow. 

All  the  arguments,  therefore,  against  the  con 
stitutionality  of  the  bill  derived  from  the  accidental 
existence  of  certain  State  banks — institutions  which 
happen  to  exist  to-day,  and,  for  aught  that  concerns 
the  government  of  the  United  States,  may  disappear 
to-morrow — must  not  only  be  rejected  as  fallacious, 
but  must  be  viewed  as  demonstrative  that  there  is 
a  radical  source  of  error  in  the  reasoning. 

It  is  essential  to  the  being  of  the  national  govern 
ment,  that  so  erroneous  a  conception  of  the  meaning 
of  the  word  necessary  should  be  exploded. 

It  is  certain,  that  neither  the  grammatical  nor 
popular  sense  of  the  term  requires  that  construction. 
According  to  both,  necessary  often  means  no  more 
than  needful,  requisite,  incidental,  useful,  or  conducive 


National  Bank  453 

to.  It  is  a  common  mode  of  expression  to  say,  that 
it  is  necessary  for  a  government  or  a  person  to  do 
this  or  that  thing,  when  nothing  more  is  intended 
or  understood,  than  that  the  interests  of  the  govern 
ment  or  person  require,  or  will  be  promoted  by,  the 
doing  of  this  or  that  thing.  The  imagination  can  be 
at  no  loss  for  exemplifications  of  the  use  of  the  word 
in  this  sense.  And  it  is  the  true  one  in  which  it  is 
to  be  understood  as  used  in  the  Constitution.  The 
whole  turn  of  the  clause  containing  it  indicates,  that 
it  was  the  intent  of  the  Convention,  by  that  clause, 
to  give  a  liberal  latitude  to  the  exercise  of  the 
specified  powers.  The  expressions  have  peculiar 
comprehensiveness.  They  are,  "to  make  all  laws 
necessary  and  proper  for  carrying  into  execution  the 
foregoing  powers,  and  all  other  powers  vested  by  the 
Constitution  in  the  Government  of  the  United  States, 
or  in  any  department  or  officer  thereof." 

To  understand  the  word  as  the  Secretary  of  State 
does,  would  be  to  depart  from  its  obvious  and  popu 
lar  sense,  and  to  give  it  a  restrictive  operation,  an 
idea  never  before  entertained.  It  would  be  to  give 
it  the  same  force  as  if  the  word  absolutely  or  indis 
pensably  had  been  prefixed  to  it. 

Such  a  construction  would  beget  endless  uncer 
tainty  and  embarrassment.  The  cases  must  be  pal 
pable  and  extreme,  in  which  it  could  be  pronounced, 
with  certainty,  that  a  measure  was  absolutely  neces 
sary,  or  one,  without  which  the  exercise  of  a  given 
power  would  be  nugatory.  There  are  few  measures 
of  any  government  which  would  stand  so  severe 
a  test.  To  insist  upon  it,  would  be  to  make  the 


454  Alexander  Hamilton 

criterion  of  the  exercise  of  any  implied  power,  a  case 
of  extreme  necessity;  which  is  rather  a  rule  to  justify 
the  overleaping  of  the  bounds  of  constitutional  au 
thority,  than  to  govern  the  ordinary  exercise  of  it. 

It  may  be  truly  said  of  every  government,  as  well 
as  of  that  of  the  United  States,  that  it  has  only  a 
right  to  pass  such  laws  as  are  necessary  and  proper  to 
accomplish  the  objects  intrusted  to  it.  For  no  gov 
ernment  has  a  right  to  do  merely  what  it  pleases. 
Hence,  by  a  process  of  reasoning  similar  to  that  of 
the  Secretary  of  State,  it  might  be  proved  that 
neither  of  the  State  governments  has  the  right  to 
incorporate  a  bank.  It  might  be  shown  that  all  the 
public  business  of  the  State  could  be  performed 
without  a  bank,  and  inferring  thence  that  it  was  un 
necessary,  it  might  be  argued  that  it  could  not  be 
done,  because  it  is  against  the  rule  which  has  been 
just  mentioned.  A  like  mode  of  reasoning  would 
prove  that  there  was  no  power  to  incorporate  the 
inhabitants  of  a  town,  with  a  view  to  a  more  perfect 
police.  For  it  is  certain  that  an  incorporation  may 
be  dispensed  with,  though  it  is  better  to  have  one. 
It  is  to  be  remembered  that  there  is  no  express  power 
in  any  State  constitution  to  erect  corporations. 

The  degree  in  which  a  measure  is  necessary  can 
never  be  a  test  of  the  legal  right  to  adopt  it;  that 
must  be  a  matter  of  opinion,  and  can  only  be  a  test 
of  expediency.  The  relation  between  the  measure  and 
the  end;  between  the  nature  of  the  means  employed 
towards  the  execution  of  a  power,  and  the  object  of 
that  power,  must  be  the  criterion  of  constitutionality, 
not  the  more  or  less  of  necessity  or  utility. 


National  Bank  455 

The  practice  of  the  government  is  against  the  rule 
of  construction  advocated  by  the  Secretary  of  State. 
Of  this,  the  act  concerning  light-houses,  beacons, 
buoys,  and  public  piers  is  a  decisive  example.  This, 
doubtless,  must  be  referred  to  the  powers  of  regulat 
ing  trade,  and  is  fairly  relative  to  it.  But  it  cannot 
be  affirmed  that  the  exercise  of  that  power  in  this 
instance  was  strictly  necessary,  or  that  the  power  it 
self  would  be  nugatory,  without  that  of  regulating 
establishments  of  this  nature. 

This  restrictive  interpretation  of  the  word  neces 
sary  is  also  contrary  to  this  sound  maxim  of  con 
struction;  namely,  that  the  powers  contained  in  a 
constitution  of  government,  especially  those  which 
concern  the  general  administration  of  the  affairs  of 
a  country,  its  finances,  trade,  defence,  etc.,  ought  to 
be  construed  liberally  in  advancement  of  the  public 
good.  This  rule  does  not  depend  on  the  particular 
form  of  a  government,  or  on  the  particular  demarca 
tion  of  the  boundaries  of  its  powers,  but  on  the  na 
ture  and  objects  of  government  itself.  The  means 
by  which  national  exigencies  are  to  be  provided  for, 
national  inconveniences  obviated,  national  prosperity 
promoted,  are  of  such  infinite  variety,  extent,  and 
complexity,  that  there  must  of  necessity  be  great 
latitude  of  discretion  in  the  selection  and  application 
of  those  means.  Hence,  consequently,  the  necessity 
and  propriety  of  exercising  the  authorities  intrusted 
to  a  government  on  principles  of  liberal  construction. 

The  Attorney-General  admits  the  rule,  but  makes 
a  distinction  between  a  State  and  the  Federal 
Constitution.  The  latter,  he  thinks,  ought  to  be 


456  Alexander  Hamilton 

construed  with  greater  strictness,  because  there  is 
more  danger  of  error  in  defining  partial  than  general 
powers.  But  the  reason  of  the  rule  forbids  such  a 
distinction.  This  reason  is,  the  variety  and  extent  of 
public  exigencies,  a  far  greater  proportion  of  which, 
and  of  a  far  more  critical  kind,  are  objects  of  Na 
tional  than  of  State  administration.  The  greater 
danger  of  error,  as  far  as  it  is  supposable,  may  be  a 
prudential  reason  for  caution  in  practice,  but  it  can 
not  be  a  rule  of  restrictive  interpretation. 

In  regard  to  the  clause  of  the  Constitution  im 
mediately  under  consideration,  it  is  admitted  by  the 
Attorney-General,  that  no  restrictive  effect  can  be 
ascribed  to  it.  He  defines  the  word  necessary  thus: 
"To  be  necessary  is  to  be  incidental,  and  may  be 
denominated  the  natural  means  of  executing  a 
power." 

But  while  on  the  one  hand  the  construction  of  the 
Secretary  of  State  is  deemed  inadmissible,  it  will  not 
be  contended,  on  the  other,  that  the  clause  in  ques 
tion  gives  any  new  or  independent  power.  But  it 
gives  an  explicit  sanction  to  the  doctrine  of  implied 
powers,  and  is  equivalent  to  an  admission  of  the 
proposition  that  the  government,  as  to  its  specified 
powers  and  objects,  has  plenary  and  sovereign  au 
thority,  in  some  cases  paramount  to  the  States;  in 
others,  co-ordinate  with  it.  For  such  is  the  plain 
import  of  the  declaration,  that  it  may  pass  all  laws 
necessary  and  proper  to  carry  into  execution  those 
powers. 

It  is  no  valid  objection  to  the  doctrine  to  say, 
that  it  is  calculated  to  extend  the  power  of  the 


National  Bank  457 

General  Government  throughout  the  entire  sphere 
of  State  legislation.  The  same  thing  has  been  said, 
and  may  be  said,  with  regard  to  every  exercise  of 
power  by  implication  or  construction. 

The  moment  the  literal  meaning  is  departed  from, 
there  is  a  chance  of  error  and  abuse.  And  yet  an 
adherence  to  the  letter  of  its  powers  would  at  once 
arrest  the  motions  of  government.  It  is  not  only 
agreed,  on  all  hands,  that  the  exercise  of  constructive 
powers  is  indispensable,  but  every  act  which  has 
been  passed  is  more  or  less  an  exemplification  of  it. 
One  has  been  already  mentioned — that  relating  to 
light-houses,  etc. ;  that  which  declares  the  power  of 
the  President  to  remove  officers  at  pleasure,  ac 
knowledges  the  same  truth  in  another  and  a  signal 
instance. 

The  truth  is,  that  difficulties  on  this  point  are  in 
herent  in  the  nature  of  the  Federal  Constitution; 
they  result  inevitably  from  a  division  of  the  legis 
lative  power.  The  consequence  of  this  division  is, 
that  there  will  be  cases  clearly  within  the  power  of 
the  National  Government;  others,  clearly  without 
its  powers;  and  a  third  class,  which  will  leave  room 
for  controversy  and  difference  of  opinion,  and  con 
cerning  which  a  reasonable  latitude  of  judgment 
must  be  allowed. 

But  the  doctrine  which  is  contended  for  is  not 
chargeable  with  the  consequences  imputed  to  it.  It 
does  not  affirm  that  the  National  Government  is 
sovereign  in  all  respects,  but  that  it  is  sovereign  to 
a  certain  extent — that  is,  to  the  extent  of  the  ob 
jects  of  its  specified  powers. 


458  Alexander  Hamilton 

It  leaves,  therefore,  a  criterion  of  what  is  con 
stitutional,  and  of  what  is  not  so.  This  criterion  is 
the  end,  to  which  the  measure  relates  as  a  means. 
If  the  end  be  clearly  comprehended  within  any  of 
the  specified  powers,  and  if  the  measure  have  an 
obvious  relation  to  that  end,  and  is  not  forbidden  by 
any  particular  provision  of  the  Constitution,  it  may 
safely  be  deemed  to  come  within  the  compass  of  the 
national  authority.  There  is  also  this  further  cri 
terion,  which  may  materially  assist  the  decision: 
Does  the  proposed  measure  abridge  a  pre-existing 
right  of  any  State  or  of  any  individual?  If  it  does 
not,  there  is  a  strong  presumption  in  favor  of  its  con 
stitutionality,  and  slighter  relations  to  any  declared 
object  of  the  Constitution  may  be  permitted  to  turn 
the  scale. 

The  general  objections,  which  are  to  be  inferred 
from  the  reasonings  of  the  Secretary  of  State  and 
the  Attorney-General,  to  the  doctrines  which  have 
been  advanced,  have  been  stated,  and  it  is  hoped 
satisfactorily  answered.  Those  of  a  more  particular 
nature  shall  now  be  examined. 

The  Secretary  of  State  introduces  his  opinion  with 
an  observation,  that  the  proposed  incorporation 
undertakes  to  create  certain  capacities,  properties, 
or  attributes,  which  are  against  the  laws  of  alienage, 
descents,  escheat,  and  forfeiture,  distribution  and 
monopoly,  and  to  confer  a  power  to  make  laws  para 
mount  to  those  of  the  States.  And  nothing,  says  he, 
in  another  place,  but  necessity,  invincible  by  other 
means,  can  justify  such  a  prostration  of  laws,  which 
constitute  the  pillars  of  our  whole  system  of  juris- 


National  Bank  459 

prudence,  and  are  the  foundation  laws  of  the  State 
governments.  If  these  are  truly  the  foundation 
laws  of  the  several  States,  then  have  most  of  them 
subverted  their  own  foundations.  For  there  is 
scarcely  one  of  them  which  has  not,  since  the  estab 
lishment  of  its  particular  constitution,  made  ma 
terial  alterations  in  some  of  those  branches  of  its 
jurisprudence,  especially  the  law  of  descents.  But 
it  is  not  conceived  how  any  thing  can  be  called  the 
fundamental  law  of  a  State  government,  which  is  not 
established  in  its  constitution,  unalterable  by  the 
ordinary  Legislature.  And  with  regard  to  the  ques 
tion  of  necessity,  it  has  been  shown  that  this  can 
only  constitute  a  question  of  expediency,  not  of 
right. 

To  erect  a  corporation,  is  to  substitute  a  legal  or 
artificial  to  a  natural  person,  and  where  a  number 
are  concerned,  to  give  them  individuality.  To  that 
legal  or  artificial  person,  once  created,  the  common  law 
of  every  State,  of  itself,  annexes  all  those  incidents 
and  attributes  which  are  represented  as  a  prostration 
of  the  main  pillars  of  their  jurisprudence. 

It  is  certainly  not  accurate  to  say  that  the  erection 
of  a  corporation  is  against  those  different  heads  of 
the  State  laws ;  because  it  is  rather  to  create  a  kind 
of  person  or  entity,  to  which  they  are  inapplicable, 
and  to  which  the  general  rule  of  those  laws  assign 
a  different  regimen.  The  laws  of  alienage  cannot 
apply  to  an  artificial  person,  because  it  can  have 
no  country;  those  of  descent  cannot  apply  to  it, 
because  it  can  have  no  heirs;  those  of  escheat 
are  foreign  from  it,  for  the  same  reason;  those  of 


460  Alexander  Hamilton 

forfeiture,  because  it  cannot  commit  a  crime;  those 
of  distribution,  because,  though  it  may  be  dissolved, 
it  cannot  die. 

As  truly  might  it  be  said,  that  the  exercise  of  the 
power  of  prescribing  the  rule  by  which  foreigners 
shall  be  naturalized  is  against  the  law  of  alienage, 
while  it  is,  in  fact,  only  to  put  them  in  a  situation  to 
cease  to  be  the  subject  of  that  law.  To  do  a  thing 
which  is  against  a  law,  is  to  do  something  which  it 
forbids,  or  which  is  a  violation  of  it. 

But  if  it  were  even  to  be  admitted  that  the  erection 
of  a  corporation  is  a  direct  alteration  of  the  stated 
laws,  in  the  enumerated  particulars,  it  would  do 
nothing  toward  proving  that  the  measure  was  un 
constitutional.  If  the  Government  of  the  United 
States  can  do  no  act  which  amounts  to  an  alteration 
of  a  State  law,  all  its  powers  are  nugatory;  for  al 
most  every  new  law  is  an  alteration,  in  some  way  or 
another,  of  an  old  law,  either  common  or  statute. 

There  are  laws  concerning  bankruptcy  in  some 
States.  Some  States  have  laws  regulating  the  values 
of  foreign  coins.  Congress  are  empowered  to  estab 
lish  uniform  laws  concerning  bankruptcy  throughout 
the  United  States,  and  to  regulate  the  values  of 
foreign  coins.  The  exercise  of  either  of  these  powers 
by  Congress  necessarily  involves  an  alteration  of  the 
laws  of  those  States. 

Again.  Every  person,  by  the  common  law  of  each 
State,  may  export  his  property  to  foreign  countries, 
at  pleasure.  But  Congress  in  pursuance  of  the 
power  of  regulating  trade,  may  prohibit  the  exporta 
tion  of  commodities;  in  doing  which,  they  would 


National  Bank  461 

alter  the  common  law  of  each  State,  in  abridgment 
of  individual  right. 

It  can  therefore  never  be  good  reasoning  to  say 
this  or  that  act  is  unconstitutional,  because  it  alters 
this  or  that  law  of  a  State.  It  must  be  shown  that 
the  act  which  makes  the  alteration  is  unconstitu 
tional  on  other  accounts;  not  because  it  makes  the 
alteration. 

There  are  two  points  in  the  suggestions  of  the 
Secretary  of  State,  which  have  been  noted,  that  are 
peculiarly  incorrect.  One  is,  that  the  proposed  in 
corporation  is  against  the  laws  of  monopoly,  because 
it  stipulates  an  exclusive  right  of  banking  under  the 
national  authority ;  the  other,  that  it  gives  power  to 
the  institution  to  make  laws  paramount  to  those  of 
the  States. 

But,  with  regard  to  the  first  point:  The  bill 
neither  prohibits  any  State  from  erecting  as  many 
banks  as  they  please,  nor  any  number  of  individuals 
from  associating  to  carry  on  the  business,  and  con 
sequently  is  free  from  the  charge  of  establishing  a 
monopoly;  for  monopoly  implies  a  legal  impediment 
to  the  carrying  on  of  the  trade  by  others  than  those 
to  whom  it  is  granted. 

.  And  with  regard  to  the  second  point,  there  is  still 
less  foundation.  The  by-laws  of  such  an  institution 
as  a  bank  can  operate  only  on  its  own  members,  can 
only  concern  the  disposition  of  its  own  property,  and 
must  essentially  resemble  the  rules  of  a  private  mer 
cantile  partnership.  They  are  expressly  not  to  be 
contrary  to  law;  and  law  must  here  mean  the  law 
of  a  State,  as  well  as  of  the  United  States.  There 


462  Alexander  Hamilton 

never  can  be  a  doubt,  that  a  law  of  a  corporation,  if 
contrary  to  a  law  of  a  State,  must  be  overruled  as 
void,  unless  the  law  of  the  State  is  contrary  to  that 
of  the  United  States,  and  then  the  question  will  not 
be  between  the  law  of  the  State  and  that  of  the 
corporation,  but  between  the  law  of  the  State  and 
that  of  the  United  States. 

Another  argument  made  use  of  by  the  Secretary 
of  State  is,  the  rejection  of  a  proposition  by  the  Con 
vention  to  empower  Congress  to  make  corporations, 
either  generally,  or  for  some  special  purpose. 

What  was  the  precise  nature  or  extent  of  this 
proposition,  or  what  the  reasons  for  refusing  it,  is 
not  ascertained  by  any  authentic  document,  or  even 
by  accurate  recollection.  As  far  as  any  such  docu 
ment  exists,  it  specifies  only  canals.  If  this  was  the 
amount  of  it,  it  would,  at  most,  only  prove  that  it 
was  thought  inexpedient  to  give  a  power  to  incor 
porate  for  the  purpose  of  opening  canals,  for  which 
purpose  a  special  power  would  have  been  necessary, 
except  with  regard  to  the  western  territory,  there 
being  nothing  in  any  part  of  the  Constitution  rer 
specting  the  regulation  of  canals.  It  must  be  con 
fessed,  however,  that  very  different  accounts  are 
given  of  the  import  of  the  proposition,  and  of  the 
motives  for  rejecting  it.  Some  affirm  that  it  was 
confined  to  the  opening  of  canals  and  obstructions 
in  rivers;  others,  that  it  embraced  banks;  and 
others,  that  it  extended  to  the  power  of  incorporating 
generally.  Some,  again,  allege  that  it  was  dis 
agreed  to  because  it  was  thought  improper  to  vest 
in  Congress  a  power  of  erecting  corporations.  Others, 


National  Bank  463 

because  it  was  thought  unnecessary  to  specify  the 
power,  and  inexpedient  to  furnish  an  additional  topic 
of  objection  to  the  Constitution.  In  this  state  of  the 
matter,  no  inference  whatever  can  be  drawn  from  it. 

But  whatever  may  have  been  the  nature  of  the 
proposition,  or  the  reasons  for  rejecting  it,  it  in 
cludes  nothing  in  respect  to  the  real  merits  of  the 
question.  The  Secretary  of  State  will  not  deny 
that,  whatever  may  have  been  the  intention  of  the 
framers  of  a  constitution  or  of  a  law,  that  intention 
is  to  be  sought  for  in  the  instrument  itself,  according 
to  the  usual  and  established  rules  of  construction. 
Nothing  is  more  common  than  for  laws  to  express 
and  effect  more  or  less  than  was  intended.  If,  then, 
a  power  to  erect  a  corporation  in  any  case  be  deduci- 
ble,  by  fair  inference,  from  the  whole  or  any  part  of 
the  numerous  provisions  of  the  Constitution  of  the 
United  States,  arguments  drawn  from  extrinsic  cir 
cumstances,  regarding  the  intention  of  the  Conven 
tion,  must  be  rejected. 

Most  of  the  arguments  of  the  Secretary  of  State, 
which  have  not  been  considered  in  the  foregoing 
remarks,  are  of  a  nature  rather  to  apply  to  the  ex 
pediency  than  to  the  constitutionality  of  the  bill. 
They  will,  however,  be  noticed  in  the  discussions 
which  will  be  necessary  in  reference  to  the  particular 
heads  of  the  powers  of  the  government  which  are  in 
volved  in  the  question. 

Those  of  the  Attorney-General  will  now  properly 
come  under  view. 

His  first  objection  is,  that  the  power  of  incorpora 
tion  is  not  expressly  given  to  Congress.  This  shall 


464  Alexander  Hamilton 

be  conceded,  but  in  this  sense  only,  that  it  is  not  de 
clared  in  express  terms  that  Congress  may  erect  a 
corporation.  But  this  cannot  mean,  that  there  are 
not  certain  express  powers  which  necessarily  include 
it.  For  instance,  Congress  have  express  power  to 
exercise  exclusive  legislation,  in  all  cases  whatso 
ever,  over  such  district  (not  exceeding  ten  miles 
square)  as  may,  by  cession  of  particular  States  and 
the  acceptance  of  Congress,  become  the  seat  of  the 
Government  of  the  United  States;  and  to  exercise 
like  authority  over  all  places  purchased,  by  consent 
of  the  Legislature  of  the  State  in  which  the  same 
shall  be,  for  the  erection  of  forts,  arsenals,  dock 
yards,  and  other  needful  buildings.  Here,  then,  is 
express  power  to  exercise  exclusive  legislation,  in  all 
cases  whatsoever,  over  certain  places — that  is,  to  do, 
in  respect  to  those  places,  all  that  any  government 
whatsoever  may  do.  For  language  does  not  afford 
a  more  complete  designation  of  sovereign  power  than 
in  those  comprehensive  terms.  It  is,  in  other  words, 
a  power  to  pass  all  laws  whatsoever,  and,  conse 
quently,  to  pass  laws  for  erecting  corporations,  as 
well  as  for  any  other  purpose  which  is  the  proper 
object  of  law  in  a  free  government. 

Surely  it  can  never  be  believed  that  Congress,  with 
exclusive  powers  of  legislation  in  all  cases  whatsoever, 
cannot  erect  a  corporation  within  the  district  which 
shall  become  the  seat  of  government,  for  the  better 
regulation  of  its  police.  And  yet  there  is  an  un 
qualified  denial  of  the  power  to  erect  corporations 
in  every  case,  on  the  part  both  of  the  Secretary  of 
State  and  of  the  Attorney-General ;  the  former,  in- 


National  Bank  465 

deed,  speaks  of  that  power  in  these  emphatical  terms : 
That  it  is  a  right  remaining  exclusively  with  the 
States. 

As  far,  then,  as  there  is  an  express  power  to  do  any 
particular  act  of  legislation,  there  is  an  express  one 
to  erect  a  corporation  in  the  case  above  described. 
But,  accurately  speaking,  no  particular  power  is 
more  than  that  implied  in  a  general  one.  Thus  the 
power  to  lay  a  duty  on  a  gallon  of  rum  is  only  a  par 
ticular  implied  in  the  general  power  to  lay  and 
collect  taxes,  duties,  imposts,  and  excises.  This 
serves  to  explain  in  what  sense  it  may  be  said 
that  Congress  have  not  an  express  power  to  make 
corporations. 

This  may  not  be  an  improper  place  to  take  notice 
of  an  argument  which  was  used  in  debate  in  the 
House  of  Representatives.  It  was  there  argued, 
that  if  the  Constitution  intended  to  confer  so  im 
portant  a  power  as  that  of  erecting  corporations,  it 
would  have  been  expressly  mentioned.  But  the 
case  which  has  been  noticed  is  clearly  one  in  which 
such  a  power  exists,  and  yet  without  any  specifica 
tion  or  express  grant  of  it,  further  than  as  every 
particular  implied  in  a  general  power  can  be  said  to 
be  so  granted. 

But  the  argument  itself  is  founded  upon  an  ex 
aggerated  and  erroneous  conception  of  the  nature  of 
the  power.  It  has  been  shown  that  it  is  not  of  so 
transcendent  a  kind  as  the  reasoning  supposes,  and 
that,  viewed  in  a  just  light,  it  is  a  means,  which 
ought  to  have  been  left  to  implication,  rather  than 
an  end,  which  ought  to  have  been  expressly  granted. 


VOL.  HI.— 30. 


466  Alexander  Hamilton 

Having  observed  that  the  power  of  erecting  cor 
porations  is  not  expressly  granted  to  Congress,  the 
Attorney-General  proceeds  thus: 

If  it  can  be  exercised  by  them,  it  must  be — 

1.  Because   the  nature   of  the  Federal  Government 
implies  it. 

2.  Because  it  is  involved  in  some  of  the   specified 
powers  of  legislation. 

3.  Because  it  is  necessary  and  proper  to  carry  into 
execution  some  of  the  specified  powers. 

To  be  implied  in  the  nature  of  the  Federal  Govern 
ment,  says  he,  would  beget  a  doctrine  so  indefinite 
as  to  grasp  at  every  power. 

This  proposition,  it  ought  to  be  remarked,  is  not 
precisely,  or  even  substantially,  that  which  has  been 
relied  upon.  The  proposition  relied  upon  is,  that 
the  specified  powers  of  Congress  are  in  their  nature 
sovereign;  that  it  is  incident  to  sovereign  power  to 
erect  corporations,  and  that  therefore  Congress  have 
a  right,  within  the  sphere  and  in  relation  to  the  ob 
jects  of  their  power,  to  erect  corporations.  It  shall, 
however,  be  supposed  that  the  Attorney-General 
would  consider  the  two  propositions  in  the  same 
light,  and  that  the  objection  made  to  the  one  would 
be  made  to  the  other. 

To  this  objection  an  answer  has  been  already 
given.  It  is  this:  that  the  doctrine  is  stated  with 
this  express  qualification,  that  the  right  to  erect  cor 
porations  does  only  extend  to  cases  and  objects 
within  the  sphere  of  the  specified  powers  of  the  gov 
ernment.  A  general  legislative  authority  implies  a 


National  Bank  467 

power  to  erect  corporations  in  all  cases.  A  par 
ticular  legislative  power  implies  authority  to  erect 
corporations  in  relation  to  cases  arising  under  that 
power  only.  Hence  the  affirming  that,  as  incident 
to  sovereign  power,  Congress  may  erect  a  corporation 
in  relation  to  the  collection  of  their  taxes,  is  no  more 
than  to  affirm  that  they  may  do  whatever  else  they 
please;  than  the  saying  that  they  have  a  power  to 
regulate  trade,  would  be  to  affirm  that  they  have  a 
power  to  regulate  religion ;  or  than  the  maintaining 
that  they  have  sovereign  power  as  to  taxation,  would 
be  to  maintain  that  they  have  sovereign  power  as  to 
every  thing  else. 

The  Attorney-General  undertakes  in  the  next 
place  to  show,  that  the  power  of  erecting  corpora 
tions  is  not  involved  in  any  of  the  specified  powers 
of  legislation  confided  to  the  National  Government. 
In  order  to  do  this,  he  has  attempted  an  enumeration 
of  the  particulars,  which  he  supposes  to  be  compre 
hended  under  the  several  heads  of  the  powers  to  lay 
and  collect  taxes,  etc.;  to  borrow  money  on  the 
credit  of  the  United  States;  to  regulate  commerce 
with  sovereign  nations,  between  the  States,  and  with 
the  Indian  tribes ;  to  dispose  of  and  make  all  need 
ful  .rules  and  regulations  respecting  the  territory  or 
other  property  belonging  to  the  United  States.  The 
design  of  which  enumeration  is  to  show  what  is  in 
cluded  under  those  different  heads  of  power,  and 
negatively,  that  the  power  of  erecting  corporations 
is  not  included. 

The  truth  of  this  inference  or  conclusion  must  de 
pend  on  the  accuracy  of  the  enumeration.  If  it  can 


468  Alexander  Hamilton 

be  shown  that  the  enumeration  is  defective,  the  in 
fluence  is  destroyed.  To  do  this  will  be  attended 
with  no  difficulty. 

The  heads  of  the  power  to  lay  and  collect  taxes 
are  stated  to  be : 

1 .  To  stipulate  the  sum  to  be  lent. 

2.  An  interest  or  no  interest  to  be  paid. 

3.  The  time  and  manner  of  repaying,  unless  the 
loan  be  placed  on  an  irredeemable  fund. 

This  enumeration  is  liable  to  a  variety  of  objec 
tions.  It  omits,  in  the  first  place,  the  pledging  or 
mortgaging  of  a  fund  for  the  security  of  the  money  lent, 
a  usual  and  in  most  cases  an  essential  ingredient. 

The  idea  of  a  stipulation  of  an  interest  or  no  in 
terest  is  too  confined.  It  should  rather  have  been 
said,  to  stipulate  the  consideration  of  the  loan.  In 
dividuals  often  borrow  on  considerations  other  than 
the  payment  of  interest;  so  may  governments,  and 
so  they  often  find  it  necessary  to  do.  Every  one 
recollects  the  lottery  tickets  and  other  douceurs 
often  given  in  Great  Britain  as  collateral  induce 
ments  to  the  lending  of  money  to  the  government. 
There  are  also  frequently  collateral  conditions, 
which  the  enumeration  does  not  contemplate.  Every 
contract  which  has  been  made  for  moneys  borrowed 
in  Holland,  induces  stipulations  that  the  sum  due 
shall  be  free  from  taxes,  and  from  sequestration  in 
time  of  war,  and  mortgages  all  the  land  and  property 
of  the  United  States  for  the  reimbursements. 

It  is  also  known  that  a  lottery  is  a  common  ex 
pedient  for  borrowing  money,  which  certainly  does 
not  fall  under  either  of  the  enumerated  heads. 


National  Bank  469 

The  heads  of  the  power  to  regulate  commerce  with 
foreign  nations  are  stated  to  be: 

1.  To  prohibit  them  or  their  commodities  from 
our  ports. 

2.  To  impose  duties  on  them,  where  none  existed 
before,  or  to  increase  existing  duties  on  them. 

3.  To  subject  them  to  any  species  of  custom 
house  regulation. 

4.  To  grant  them  any  exemptions  or  privileges 
which  policy  may  suggest. 

This  enumeration  is  far  more  exceptionable  than 
either  of  the  former.  It  omits  every  thing  that  re 
lates  to  the  citizens'  vessels,  or  commodities  of  the 
United  States. 

The  following  palpable  omissions  occur  at  once: 

1 .  Of  the  power  to  prohibit  the  exportation  of  com 
modities,  which  not  only  exists  at  all  times,  but  which 
in  time  of  war  it  would  be  necessary  to  exercise,  par 
ticularly  with  relation  to  naval  and  warlike  stores. 

2.  Of  the  power  to  prescribe  rules  concerning  the 
characteristics  and  privileges  of  an  American  bottom ; 
how  she  shall  be  navigated,  or  whether  by  citizens  or 
foreigners,  or  by  a  proportion  of  each. 

3.  Of  the  power  of  regulating  the  manner  of  con 
tracting  with  seamen,  the  police  of  ships  on  their 
voyages,  etc.,  of  which  the  act  for  the  government 
and  regulation  of  seamen,  in  the  merchants'  service, 
is  a  specimen. 

That  the  three  preceding  articles  are  omissions  will 
not  be  doubted ;  there  is  a  long  list  of  items  in  addi 
tion,  which  admit  of  little  if  any  question,  of  which  a 
few  samples  shall  be  given. 


470  Alexander  Hamilton 

1.  The  granting  of  bounties  to  certain  kinds  of 
vessels,  and  certain  species  of  merchandise;   of  this 
nature  is  the  allowance  on  dried  and  pickled  fish  and 
salted  provisions. 

2.  The   prescribing  of  rules   concerning  the   in 
spection  of  commodities  to  be  exported.     Though 
the  States  individually  are  competent  to  this  regula 
tion,  yet  there  is  no  reason,  in  point  of  authority  at 
least,  why  a  general  system  might  not  be  adopted 
by  the  United  States. 

3.  The  regulation  of  policies  of  insurance,  of  sal 
vage  upon  goods  found  at  sea,  and  the  disposition  of 
such  goods. 

4.  The  regulation  of  pilots. 

5.  The  regulation  of  bills  of  exchange  drawn  by  a 
merchant  of  one  State  upon  a  merchant  of  another 
State.     This  last  rather  belongs  to  the  regulation  of 
trade  between  the  States,  but  is  equally  omitted  in 
the  specification  under  that  head. 

The  last  enumeration  relates  to  the  power  to  dis 
pose  of  and  make  all  needful  rules  and  regulations  re 
specting  the  territory  or  other  property  belonging  to 
the  United  States. 

The  heads  of  this  power  are  said  to  be: 

1 .  To  exert  an  ownership  over  the  territory  of  the 
United  States,  which  may  be  properly,  called  the 
property  of  the  United  States,  as  in  the  western  terri 
tory,  and  to  institute  a  government  therein,  or 

2.  To  exert  an  ownership  over  the  other  property 
of  the  United  States. 

The  idea  of  exerting  an  ownership  over  the  terri 
tory  or  other  property  of  the  United  States  is  par- 


National  Bank  471 

ticularly  indefinite  and  vague.  It  does  not  at  all 
satisfy  the  conception  of  what  must  have  been  in 
tended  by  a  power  to  make  all  needful  rules  and 
regulations,  nor  would  there  have  been  any  use  for  a 
special  clause,  which  authorized  nothing  more.  For 
the  right  of  exerting  an  ownership  is  implied  in  the 
very  definition  of  property.  It  is  admitted,  that  in 
regard  to  the  western  territory  something  more  is 
intended;  even  the  institution  of  a  government — 
that  is,  the  creation  of  a  body  politic,  or  corporation 
of  the  highest  nature;  one  which,  in  its  maturity, 
will  be  able  itself  to  create  other  corporations.  Why, 
then,  does  not  the  same  clause  authorize  the  erection 
of  a  corporation  in  respect  to  the  regulation  or  disposal 
of  any  other  of  the  property  of  the  United  States? 

This  idea  will  be  enlarged  upon  in  another  place. 

Hence  it  appears,  that  the  enumerations  which 
have  been  attempted  by  the  Attorney-General,  are 
so  imperfect  as  to  authorize  no  conclusion  whatever ; 
they  therefore  have  no  tendency  to  disprove  that 
each  and  every  of  the  powers  to  which  they  relate 
includes  that  of  erecting  corporations,  which  they 
certainly  do,  as  the  subsequent  illustrations  will 
more  and  more  evince. 

It  is  presumed  to  have  been  satisfactorily  shown 
in  the  course  of  the  preceding  observations: 

1.  That  the  power  of  the  government,  as  to  the 
objects  intrusted  to  its  management,  is,  in  its  nature, 
sovereign. 

2.  That  the  right  of  erecting  corporations  is  one 
inherent  in,  and  inseparable  from,  the  idea  of  sover 
eign  power. 


472  Alexander  Hamilton 

3.  That  the  position,  that  the  government  of  the 
United  States  can  exercise  no  power  but  such  as  is 
delegated  to  it  by  its  Constitution,  does  not  militate 
against  this  principle. 

4.  That  the  word  necessary,  in  the  general  clause, 
can  have  no  restrictive  operation  derogating  from  the 
force  of  this  principle;    indeed,  that  the  degree  in 
which  a  measure  is  or  is  not  necessary,  cannot  be  a 
test  of  constitutional  right,  but  of  expediency  only. 

5.  That  the  power  to  erect  corporations  is  not  to 
be  considered  as  an  independent  or  substantive  power, 
but  as  an  incidental  and  auxiliary  one,   and  was 
therefore  more  properly  left  to  implication,  than  ex 
pressly  granted. 

6.  That  the  principle  in  question  does  not  extend 
the  power  of  the  government  beyond  the  prescribed 
limits,  because  it  only  affirms  a  power  to  incorporate 
for  purposes  within  the  sphere  of  the  specified  powers. 

And  lastly,  that  the  right  to  exercise  such  a  power 
in  certain  cases  is  unequivocally  granted  in  the  most 
positive  and  comprehensive  terms.  To  all  which  it 
only  remains  to  be  added,  that  such  a  power  has 
actually  been  exercised  in  two  very  eminent  in 
stances  :  namely,  in  the  erection  of  two  governments ; 
one  northwest  of  the  river  Ohio,  and  the  other 
southwest — the  last  independent  of  any  antecedent 
compact.  And  these  result  in  a  full  and  complete 
demonstration,  that  the  Secretary  of  State  and  the 
Attorney-General  are  mistaken  when  they  deny 
generally  the  power  of  the  National  Government  to 
erect  corporations. 

It  shall  now  be  endeavored  to  be  shown  that  there 


National  Bank  473 

is  a  power  to  erect  one  of  the  kind  proposed  by  the 
bill.  This  will  be  done  by  tracing  a  natural  and 
obvious  relation  between  the  institution  of  a  bank 
and  the  objects  of  several  of  the  enumerated  powers 
of  the  government ;  and  by  showing  that,  politically 
speaking,  it  is  necessary  to  the  effectual  execution 
of  one  or  more  of  those  powers. 

In  the  course  of  this  investigation,  various  in 
stances  will  be  stated,  by  way  of  illustration  of  a 
right  to  erect  corporations  under  those  powers. 

Some  preliminary  observations  may  be  proper. 

The  proposed  bank  is  to  consist  of  an  association 
of  persons,  for  the  purpose  of  creating  a  joint  capital, 
to  be  employed  chiefly  and  essentially  in  loans.  So 
far  the  object  is  not  only  lawful,  but  it  is  the  mere 
exercise  of  a  right  which  the  law  allows  to  every  in 
dividual.  The  Bank  of  New  York,  which  is  not  in 
corporated,  is  an  example  of  such  an  association. 
The  bill  proposes,  in  addition,  that  the  government 
shall  become  a  joint  proprietor  in  this  undertaking, 
and  that  it  shall  permit  the  bills  of  the  company, 
payable  on  demand,  to  be  receivable  in  its  revenues ; 
and  stipulates  that  it  shall  not  grant  privileges, 
similar  to  those  which  are  to  be  allowed  to  this  com 
pany,  to  any  others.  All  this  is  incontrovertibly 
within  the  compass  of  the  discretion  of  the  govern 
ment.  The  only  question  is,  whether  it  has  a  right 
to  incorporate  this  company,  in  order  to  enable  it 
the  more  effectually  to  accomplish  ends  which  are  in 
themselves  lawful. 

To  establish  such  a  right,  it  remains  to  show  the 
relation  of  such  an  institution  to  one  or  more  of  the 


474  Alexander  Hamilton 

specified  powers  of  the  government.  Accordingly  it 
is  affirmed  that  it  has  a  relation,  more  or  less  direct, 
to  the  power  of  collecting  taxes,  to  that  of  borrowing 
money,  to  that  of  regulating  trade  between  the 
States,  and  to  those  of  raising  and  maintaining  fleets 
and  armies.  To  the  two  former  the  relation  may  be 
said  to  be  immediate ;  and  in  the  last  place  it  will  be 
argued,  that  it  is  clearly  within  the  provision  which 
authorizes  the  making  of  all  needful  rules  and  regula 
tions  concerning  the  property  of  the  United  States, 
as  the  same  has  been  practised  upon  by  the  govern 
ment. 

A  bank  relates  to  the  collection  of  taxes  in  two 
ways — indirectly,  by  increasing  the  quantity  of  cir 
culating  medium  and  quickening  circulation,  which 
facilitates  the  means  of  paying  directly,  by  creating 
a  convenient  species  of  medium  in  which  they  are  to 
be  paid. 

To  designate  or  appoint  the  money  or  thing  in 
which  taxes  are  to  be  paid,  is  not  only  a  proper 
but  a  necessary  exercise  of  the  power  of  collecting 
them.  Accordingly  Congress,  in  the  law  concerning 
the  collection  of  the  duties  on  imposts  and  tonnage, 
have  provided  that  they  shall  be  paid  in  gold  and 
silver.  But  while  it  was  an  indispensable  part  of 
the  work  to  say  in  what  they  should  be  paid,  the 
choice  of  the  specific  thing  was  mere  matter  of  dis 
cretion.  The  payment  might  have  been  required  in 
the  commodities  themselves.  Taxes  in  kind,  how 
ever  ill-judged,  are  not  without  precedents,  even  in 
the  United  States;  or  it  might  have  been  in  the 
paper  money  of  the  several  States,  or  in  the  bills  of 


National  Bank  475 

the  banks  of  North  America,  New  York,  and  Massa 
chusetts,  all  or  either  of  them;  or  it  might  have  been 
in  bills  issued  under  the  authority  of  the  United 
States. 

No  part  of  this  can,  it  is  presumed,  be  disputed. 
The  appointment,  then,  of  the  money  or  thing  in 
which  the  taxes  are  to  be  paid,  is  an  incident  to 
the  power  of  collection.  And  among  the  expedients 
which  may  be  adopted,  is  that  of  bills  issued  under 
the  authority  of  the  United  States. 

Now  the  manner  of  issuing  these  bills  is  again 
matter  of  discretion.  The  government  might  doubt 
less  proceed  in  the  following  manner : 

It  might  provide  that  they  should  be  issued  under 
the  direction  of  certain  officers,  payable  on  demand; 
and,  in  order  to  support  their  credit,  and  give  them 
a  ready  circulation,  it  might,  besides  giving  them  a 
currency  in  its  taxes,  set  apart,  out  of  any  moneys 
in  its  treasury,  a  given  sum,  and  appropriate  it,  under 
the  direction  of  those  officers,  as  a  fund  for  answer 
ing  the  bills,  as  presented  for  payment. 

The  constitutionality  of  all  this  would  not  admit 
of  a  question,  and  yet  it  would  amount  to  the  in 
stitution  of  a  bank,  with  a  view  to  the  more  con 
venient  collection  of  taxes.  For  the  simplest  and 
most  precise  idea  of  a  bank  is,  a  deposit  of  coin,  or 
other  property,  as  a  fund  for  circulating  a  credit  upon 
it,  which  is  to  answer  the  purpose  of  money.  That 
such  an  arrangement  would  be  equivalent  to  the 
establishment  of  a  bank,  would  become  obvious,  if 
the  place  where  the  fund  to  be  set  apart  was  kept 
should  be  made  a  receptacle  of  the  moneys  of  all 


476  Alexander  Hamilton 

other  persons  who  should  incline  to  deposit  them 
there  for  safe-keeping ;  and  would  become  still  more 
so,  if  the  officers  charged  with  the  direction  of  the 
fund  were  authorized  to  make  discounts  at  the 
usual  rate  of  interest,  upon  good  security.  To  deny 
the  power  of  the  government  to  add  these  ingredients 
to  the  plan,  would  be  to  refine  away  all  government. 
A  further  process  will  still  more  clearly  illustrate 
the  point.  Suppose,  when  the  species  of  bank 
which  has  been  described  was  about  to  be  instituted, 
it  was  to  be  urged  that,  in  order  to  secure  to  it  a  due 
degree  of  confidence,  the  fund  ought  not  only  to  be 
set  apart  and  appropriated  generally,  but  ought  to 
be  specifically  vested  in  the  officers  who  were  to  have 
the  direction  of  it,  and  in  their  successors  in  office,  to 
the  end  that  it  might  acquire  the  character  of  private 
property  incapable  of  being  resumed  without  a  viola 
tion  of  the  sanctions  by  which  the  rights  of  property 
are  protected,  and  occasioning  more  serious  and 
general  alarm — the  apprehension  of  which  might 
operate  as  a  check  upon  the  government.  Such  a 
proposition  might  be  opposed  by  arguments  against 
the  expediency  of  it,  or  the  solidity  of  the  reason 
assigned  for  it,  but  it  is  not  conceivable  what  could 
be  urged  against  its  constitutionality;  and  yet  such 
a  disposition  of  the  thing  would  amount  to  the  erec 
tion  of  a  corporation;  for  the  true  definition  of  a 
corporation  seems  to  be  this :  It  is  a  legal  person,  or 
a  person  created  by  act  of  law,  consisting  of  one  or 
more  natural  persons  authorized  to  hold  property, 
or  a  franchise  in  succession,  in  a  legal,  as  contra 
distinguished  from  natural,  capacity. 


National  Bank  477 

Let  the  illustration  proceed  a  step  further.  Sup 
pose  a  bank  of  the  nature  which  has  been  described, 
with  or  without  incorporation,  had  been  instituted, 
and  that  experience  had  evinced,  as  it  probably 
would,  that,  being  wholly  under  a  public  direction, 
it  possessed  not  the  confidence  requisite  to  the  credit 
of  the  bills.  Suppose,  also,  that,  by  some  of  those 
adverse  conjunctures  which  occasionally  attend  na 
tions,  there  had  been  a  very  great  drain  of  the  specie 
of  the  country,  so  as  not  only  to  cause  general  dis 
tress  for  want  of  an  adequate  medium  of  circulation, 
but  to  produce,  in  consequence  of  that  circumstance, 
considerable  defalcations  in  the  public  revenues. 
Suppose,  also,  that  there  was  no  bank  instituted  in 
any  State ;  in  such  a  posture  of  things,  would  it  not 
be  most  manifest,  that  the  incorporation  of  a  bank 
like  that  proposed  by  the  bill  would  be  a  measure 
immediately  relative  to  the  effectual  collection  of  the 
taxes,  and  completely  within  the  province  of  the 
sovereign  power  of  providing,  by  all  laws  necessary 
and  proper,  for  that  collection?  If  it  be  said,  that 
such  a  state  of  things  would  render  that  necessary, 
and  therefore  constitutional,  which  is  not  so  now, 
the  answer  to  this,  and  a  solid  one  it  doubtless 
is,  must  still  be  that  which  has  been  already  stated 
—circumstances  may  affect  the  expediency  of  the 
measure,  but  they  can  neither  add  to  nor  diminish 
its  constitutionality. 

A  bank  has  a  direct  relation  to  the  power  of  bor 
rowing  money,  because  it  is  a  usual,  and  in  sudden 
emergencies  an  essential,  instrument  in  the  obtain 
ing  of  loans  to  government. 


478  Alexander  Hamilton 

A  nation  is  threatened  with  war;  large  sums  are 
wanted  on  a  sudden  to  make  the  necessary  pre 
parations.  Taxes  are  laid  for  the  purpose,  but  it 
requires  time  to  obtain  the  benefit  of  them.  Anticipa 
tion  is  indispensable.  If  there  be  a  bank  the  supply 
can  at  once  be  had.  If  there  be  none,  loans  from 
individuals  must  be  sought.  The  progress  of  these 
is  often  too  slow  for  the  exigency ;  in  some  situations 
they  are  not  practicable  at  all.  Frequently,  when 
they  are,  it  is  of  great  consequence  to  be  able  to 
anticipate  the  product  of  them  by  advance  from  a 
bank. 

The  essentiality  of  such  an  institution  as  an  in 
strument  of  loans,  is  exemplified  at  this  very  mo 
ment.  An  Indian  expedition  is  to  be  prosecuted. 
The  only  fund  out  of  which  the  money  can  arise, 
consistently  with  the  public  engagements,  is  a  tax, 
which  only  begins  to  be  collected  in  July  next.  The 
preparations,  however,  are  instantly  to  be  made. 
The  money  must,  therefore,  be  borrowed — and  of 
whom  could  it  be  borrowed  if  there  were  no  public 
banks  ? 

It  happens  that  there  are  institutigns  of  this  kind, 
but  if  there  were  none,  it  would  be  indispensable  to 
create  one. 

Let  it  then  be  supposed  that  the  necessity  existed 
(as  but  for  a  casualty  would  be  the  case),  that  pro 
posals  were  made  for  obtaining  a  loan ;  that  a  num 
ber  of  individuals  came  forward  and  said,  we  are 
willing  to  accommodate  the  government  with  the 
money;  with  what  we  have  in  hand,  and  the  credit 
we  can  raise  upon  it,  we  doubt  not  of  being  able 


National  Bank  479 

to  furnish  the  sum  required ,  but  in  order  to  do  this 
it  is  indispensable  that  we  should  be  incorporated  as 
a  bank.  This  is  essential  towards  putting  it  in  our 
power  to  do  what  is  desired,  and  we  are  obliged  on 
that  account  to  make  it  the  consideration  or  condi 
tion  of  the  loan. 

Can  it  be  believed  that  a  compliance  with  this 
proposition  would  be  unconstitutional?  Does  not 
this  alone  evince  the  contrary?  It  is  a  necessary 
part  of  a  power  to  borrow,  to  be  able  to  stipulate 
the  consideration  or  conditions  of  a  loan.  It  is  evid 
ent,  as  has  been  remarked  elsewhere,  that  this  is 
not  confined  to  the  mere  stipulation  of  a  franchise. 
If  it  may,  and  it  is  not  perceived  why  it  may  not, 
then  the  grant  of  a  corporate  capacity  may  be  stipu 
lated  as  a  consideration  of  the  loan.  There  seems 
to  be  nothing  unfit  or  foreign  from  the  nature  of  the 
thing  in  giving  individuality,  or  a  corporate  capacity, 
to  a  number  of  persons,  who  are  willing  to  lend  a 
sum  of  money  to  the  government,  the  better  to  en 
able  them  to  do  it,  and  make  them  an  ordinary  in 
strument  of  loans  in  future  emergencies  of  the  state. 
But  the  more  general  view  of  the  subject  is  still  more 
satisfactory.  The  legislative  power  of  borrowing 
money,  and  of  making  all  laws  necessary  and  proper 
for  carrying  into  execution  that  power,  seems  ob 
viously  competent  to  the  appointment  of  the  organ, 
through  which  the  abilities  and  wills  of  individuals 
may  be  most  efficaciously  exerted  for  the  accommo 
dation  of  the  government  by  loans. 

The  Attorney-General  opposes  to  this  reasoning 
the  following  observation :  "  Borrowing  money 


480  Alexander  Hamilton 

presupposes  the  accumulation  of  a  fund  to  be  lent,  and 
is  second  to  the  creation  of  an  ability  to  lend."  This 
is  plausible  in  theory,  but  is  not  true  in  fact.  In  a 
great  number  of  cases,  a  previous  accumulation  of  a 
fund  equal  to  the  whole  sum  required  does  not  exist. 
And  nothing  more  can  be  actually  presupposed,  than 
that  there  exist  resources,  which,  put  into  activity 
to  the  greatest  advantage  by  the  nature  of  the  opera 
tion  with  the  government,  will  be  equal  to  the  effect 
desired  to  be  produced.  All  the  provisions  and  op 
erations  of  government  must  be  presumed  to  con 
template  as  they  really  are. 

The  institution  of  a  bank  has  also  a  natural  rela 
tion  to  the  regulation  of  trade  between  the  States,  in 
so  far  as  it  is  conducive  to  the  creation  of  a  convenient 
medium  of  exchange  between  them,  and  to  the  keep 
ing  up  a  full  circulation,  by  preventing  the  frequent 
displacement  of  the  metals  in  reciprocal  remittances. 
Money  is  the  very  hinge  on  which  commerce  turns. 
And  this  does  not  merely  mean  gold  and  silver; 
many  other  things  iiave  served  the  purpose,  with 
different  degrees  of  utility.  Paper  has  been  exten 
sively  employed. 

It  cannot,  therefore,  be  admitted,  with  the  At 
torney-General,  that  the  regulation  of  trade  between 
the  States,  as  it  concerns  the  medium  of  circulation 
and  exchange,  ought  to  be  considered  as  confined  to 
coin.  It  is  even  supposable  that  the  whole,  or  the 
greatest  part,  of  the  coin  of  the  country  might  be 
carried  out  of  it. 

The  Secretary  of  State  objects  to  the  relation  here 
insisted  upon,  by  the  following  mode  of  reasoning: 


National  Bank  481 

To  erect  a  bank,  says  he,  and  to  regulate  commerce, 
are  very  different  acts.  He  who  creates  a  bank, 
creates  a  subject  of  commerce ;  so  does  he  who  makes 
a  bushel  of  wheat,  or  digs  a  dollar  out  of  the  mines; 
yet  neither  of  these  persons  regulates  commerce 
thereby.  To  make  a  thing  which  may  be  bought 
and  sold,  is  not  to  prescribe  regulations  for  buying 
and  selling. 

This  making  the  regulation  of  commerce  to  consist 
in  prescribing  rules  for  buying  and  selling — this,  in 
deed,  is  a  species  of  regulation  of  trade,  but  is  one 
which  falls  more  aptly  within  the  province  of  the 
local  jurisdictions  than  within  that  of  the  general 
government,  whose  care  must  be  presumed  to  have 
been  intended  to  be  directed  to  those  general  po 
litical  arrangements  concerning  trade  on  which  its 
aggregate  interests  depend,  rather  than  to  the  de 
tails  of  buying  and  selling.  Accordingly,  such  only 
are  the  regulations  to  be  found  in  the  laws  of  the 
United  States,  whose  objects  are  to  give  encourage 
ment  to  the  enterprise  of  our  own  merchants,  and  to 
advance  our  navigation  and  manufactures.  And  it 
is  in  reference  to  these  general  relations  of  commerce 
that  an  establishment  which  furnishes  facilities  to 
circulation,  and  a  convenient  medium  of  exchange 
and  alienation,  is  to  be  regarded  as  a  regulation  of 
trade. 

The  Secretary  of  State  further  argues  that  if  this 
was  a  regulation  of  commerce,  it  would  be  void,  as 
extending  as  much  to  the  internal  commerce  of  every 
State  as  to  its  external.  But  what  regulation  of  com 
merce  does  not  extend  to  the  internal  commerce  of 

VOL.  III. — 31. 


482  Alexander  Hamilton 

every  State?  What  are  all  the  duties  upon  im 
ported  articles,  amounting  to  prohibitions,  but  so 
many  bounties  upon  domestic  manufactures,  affect 
ing  the  interests  of  different  classes  of  citizens,  in 
different  ways?  What  are  all  the  provisions  in  the 
Coasting  Act  which  relate  to  the  trade  between  dis 
trict  and  district  of  the  same  State  ?  In  short,  what 
regulation  of  trade  between  the  States  but  must 
affect  the  internal  trade  of  each  State?  What  can 
operate  upon  the  whole  but  must  extend  to  every 
part? 

The  relation  of  a  bank  to  the  execution  of  the 
powers  that  concern  the  common  defence  has  been 
anticipated.  It  has  been  noted  that,  at  this  very 
moment,  the  aid  of  such  an  institution  is  essential 
to  the  measures  to  be  pursued  for  the  protection  of 
our  frontiers. 

It  now  remains  to  show  that  the  incorporation  of 
a  bank  is  within  the  operation  of  the  provision  which 
authorizes  Congress  to  make  all  needful  rules  and 
regulations  concerning  the  property  of  the  United 
States.  But  it  is  previously  necessary  to  advert  to 
a  distinction  which  has  been  taken  by  the  Attorney- 
General. 

He  admits  that  the  word  property  may  signify  per 
sonal  property,  however  acquired,  and  yet  asserts 
that  it  cannot  signify  money  arising  from  the  sources 
of  revenue  pointed  out  in  the  Constitution,  "be 
cause,"  says  he,  "the  disposal  and  regulation  of 
money  is  the  final  cause  for  raising  it  by  taxes." 

But  it  would  be  more  accurate  to  say  that  the 
object  to  which  money  is  intended  to  be  applied  is 


National  Bank  483 

the  -final  cause  for  raising  it,  than  that  the  disposal 
and  regulation  of  it  is  such. 

The  support  of  government — the  support  of  troops 
for  the  common  defence — the  payment  of  the  public 
debt,  are  the  true  -final  causes  for  raising  money.  The 
disposition  and  regulation  of  it,  when  raised,  are  the 
steps  by  which  it  is  applied  to  the  ends  for  which  it 
was  raised,  not  the  ends  themselves.  Hence,  there 
fore,  the  money  to  be  raised  by  taxes,  as  well  as  any 
other  personal  property,  must  be  supposed  to  come 
within  the  meaning,  as  they  certainly  do  within  the 
letter,  of  authority  to  make  all  needful  rules  and 
regulations  concerning  the  property  of  the  United 
States. 

A  case  will  make  this  plainer.  Suppose  the  public 
debt  discharged,  and  the  funds  now  pledged  for  it 
liberated.  In  some  instances  it  would  be  found  ex 
pedient  to  repeal  the  taxes;  in  others,  the  repeal 
might  injure  our  own  industry,  our  agriculture  and 
manufactures.  In  these  cases  they  would,  of  course, 
be  retained.  Here,  then,  would  be  moneys  arising 
from  the  authorized  sources  of  revenue,  which  would 
not  fall  within  the  rule  by  which  the  Attorney- 
General  endeavors  to  except  them  from  other  per 
sonal  property,  and  from  the  operation  of  the  clause 
in  question.  The  moneys  being  in  the  coffers  of 
government,  what  is  to  hinder  such  a  disposition  to 
be  made  of  them  as  is  contemplated  in  the  bill;  or 
what,  an  incorporation  of  the  parties  concerned, 
under  the  clause  which  has  been  cited? 

It  is  admitted,  that  with  regard  to  the  western 
territory  they  give  a  power  to  erect  a  corporation — 


484  Alexander  Hamilton 

that  is,  to  institute  a  government;  and  by  what  rule 
of  construction  can  it  be  maintained,  that  the  same 
words  in  a  constitution  of  government  will  not  have 
the  same  effect  when  applied  to  one  species  of  prop 
erty  as  to  another,  as  far  as  the  subject  is  capable  of 
it? — or  that  a  legislative  power  to  make  all  needful 
rules  and  regulations,  or  to  pass  all  laws  necessary 
and  proper,  concerning  the  public  property,  which  is 
admitted  to  authorize  an  incorporation  in  one  case, 
will  not  authorize  it  in  another? — will  justify  the  in 
stitution  of  a  government  over  the  western  territory, 
and  will  not  justify  the  incorporation  of  a  bank  for 
the  more  useful  management  of  the  moneys  of  the 
United  States?  If  it  will  do  the  last,  as  well  as  the 
first,  then,  under  this  provision  alone,  the  bill  is 
constitutional,  because  it  contemplates  that  the 
United  States  shall  be  joint  proprietors  of  the  stock 
of  the  bank. 

There  is  an  observation  of  the  Secretary  of  State 
to  this  effect,  which  may  require  notice  in  this  place : 
—Congress,  says  he,  are  not  to  lay  taxes  ad  libitum, 
for  any  purpose  they  please,  but  only  to  pay  the  debts 
or  provide  for  the  welfare  of  the  Union.  Certainly 
no  inference  can  be  drawn  from  this  against  the 
power  of  applying  their  money  for  the  institution  of 
a  bank.  It  is  true  that  they  cannot  without  breach 
of  trust  lay  taxes  for  any  other  purpose  than  the 
general  welfare;  but  so  neither  can  any  other  gov 
ernment.  The  welfare  of  the  community  is  the  only 
legitimate  end  for  which  money  can  be  raised  on  the 
community.  Congress  can  be  considered  as  under 
only  one  restriction  which  does  not  apply  to  other 


National  Bank  485 

governments — they  cannot  rightfully  apply  the 
money  they  raise  to  any  purpose  merely  or  purely 
local.  But,  with  this  exception,  they  have  as  large 
a  discretion  in  relation  to  the  application  of  money 
as  any  Legislature  whatever.  The  constitutional 
test  of  a  right  application  must  always  be,  whether  it 
be  for  a  purpose  of  general  or  local  nature.  If  the 
former,  there  can  be  no  want  of  constitutional  power. 
The  quality  of  the  object,  as  how  far  it  will  really  pro 
mote  or  not  the  welfare  of  the  Union,  must  be  matter 
of  conscientious  discretion,  and  the  arguments  for 
or  against  a  measure  in  this  light  must  be  arguments 
concerning  expediency  or  inexpediency,  not  con 
stitutional  right.  Whatever  relates  to  the  general 
order  of  the  finances,  to  the  general  interests  of 
trade,  etc.,  being  general  objects,  are  constitutional 
ones  for  the  application  of  money. 

A  bank,  then,  whose  bills  are  to  circulate  in  all  the 
revenues  of  the  country,  is  evidently  a  general  object, 
and,  for  that  very  reason,  a  constitutional  one,  as 
far  as  regards  the  appropriation  of  money  to  it. 
Whether  it  will  really  be  a  beneficial  one  or  not,  is 
worthy  of  careful  examination,  but  is  no  more  a 
constitutional  point,  in  the  particular  referred  to, 
than  the  question,  whether  the  western  lands  shall 
be  Sold  for  twenty  or  thirty  cents  per  acre. 

A  hope  is  entertained  that  it  has,  by  this  time, 
been  made  to  appear,  to  the  satisfaction  of  the  Presi 
dent,  that  a  bank  has  a  natural  relation  to  the  power 
of  collecting  taxes — to  that  of  regulating  trade — to 
that  of  providing  for  the  common  defence — and 
that,  as  the  bill  under  consideration  contemplates 


486  Alexander  Hamilton 

the  government  in  the  light  of  a  joint  proprietor  of 
the  stock  of  the  bank,  it  brings  the  case  within  the 
provision  of  the  clause  of  the  Constitution  which 
immediately  respects  the  property  of  the  United 
States. 

Under  a  conviction  that  such  a  relation  subsists, 
the  Secretary  of  the  Treasury,  with  all  deference, 
conceives  that  it  will  result  as  a  necessary  conse 
quence  from  the  position,  that  all  the  specified  powers 
of  government  are  sovereign,  as  to  the  proper  ob 
jects;  that  the  incorporation  of  a  bank  is  a  con 
stitutional  measure;  and  that  the  objections  taken 
to  the  bill,  in  this  respect,  are  ill-founded. 

But,  from  an  earnest  desire  to  give  the  utmost 
possible  satisfaction  to  the  mind  of  the  President,  on 
so  delicate  and  important  a  subject,  the  Secretary 
of  the  Treasury  will  ask  his  indulgence,  while  he  gives 
some  additional  illustrations  of  cases  in  which  a 
power  of  erecting  corporations  may  be  exercised, 
under  some  of  those  heads  of  the  specified  powers  of 
the  government,  which  are  alleged  to  include  the 
right  of  incorporating  a  bank. 

i.  It  does  not  appear  susceptible  of  a  doubt,  that 
if  Congress  had  thought  proper  to  provide,  in  the 
collection  laws,  that  the  bonds  to  be  given  for  the 
duties  should  be  given  to  the  collector  of  the  dis 
trict,  A  or  B,  as  the  case  might  require,  to  enure  to 
him  and  his  successors  in  office,  in  trust  for  the 
United  States,  that  it  would  have  been  consistent 
with  the  Constitution  to  make  such  an  arrangement ; 
and  yet  this,  it  is  conceived,  would  amount  to  an 
incorporation. 


National  Bank  487 

2.  It  is  not  an  unusual  expedient  of  taxation  to  farm 
particular  branches  of  revenue — that  is,  to  mortgage 
or  sell  the  product  of  them  for  certain  definite  sums, 
leaving  the  collection  to  the  parties  to  whom  they 
are  mortgaged  or  sold.     There  are  even  examples  of 
this  in  the  United  States.     Suppose  that  there  was 
any  particular  branch  of  revenue  which  it  was  mani 
festly  expedient  to  place  on  this  footing,  and  there 
were  a  number  of  persons  willing  to  engage  with  the 
government,   upon  condition  that  they  should  be 
incorporated,  and  the  sums  vested  in  them,  as  well 
for  their  greater  safety,  as  for  the  more  convenient 
recovery  and  management  of  the  taxes.     Is  it  sup- 
posable  that  there  could  be  any  constitutional  ob 
stacle  to  the  measure?     It  is  presumed  that  there 
could  be  none.     It  is  certainly  a  mode  of  collection 
which  it  would  be  in  the  discretion  of  the  govern 
ment  to  adopt,  though  the  circumstances  must  be 
very  extraordinary  that  would  induce  the  Secretary 
to  think  it  expedient. 

3.  Suppose  a  new  and  unexplored  branch  of  trade 
should  present  itself,   with  some  foreign  country. 
Suppose  it  was  manifest,  that  to  undertake  it  with 
advantage  required  a  union  of  the  capitals  of  a  number 
of  individuals,  and  that  those  individuals  would  not 
be  disposed  to  embark  without  an  incorporation,  as 
well  to  obviate  that  consequence  of  a  private  part 
nership  which  makes  every  individual  liable  in  his 
whole  estate  for  the  debts  of  the  company,  to  their 
utmost  extent,  as  for  the  more  convenient  manage 
ment  of  the  business — what  reason  can  there  be  to 
doubt  that  the  National  Government  would  have 


488  Alexander  Hamilton 

a  constitutional  right  to  institute  and  incorporate 
such  a  company?  None.  They  possess  a  general 
authority  to  regulate  trade  with  foreign  countries. 
This  is  a  means,  which  has  been  practised  to  that 
end,  by  all  the  principal  commercial  nations,  who 
have  trading  companies  to  this  day,  which  have 
subsisted  for  centuries.  Why  may  not  the  United 
States,  constitutionally,  employ  the  means,  usual  in 
other  countries,  for  attaining  the  ends  intrusted  to 
them? 

A  power  to  make  all  needful  rules  and  regulations 
concerning  territory,  has  been  construed  to  mean  a 
power  to  erect  a  government.  A  power  to  regulate 
trade,  is  a  power  to  make  all  needful  rules  and  regu 
lations  concerning  trade.  Why  may  it  not,  then, 
include  that  of  erecting  a  trading  company,  as  well 
as,  in  other  cases,  to  erect  a  government  ? 

It  is  remarkable  that  the  State  conventions,  who 
had  proposed  amendments  in  relation  to  this  point, 
have  most,  if  not  all,  of  them  expressed  themselves 
nearly  thus:  Congress  shall  not  grant  monopolies, 
nor  erect  any  company  with  exclusive  advantages 
of  commerce!  Thus,  at  the  same  time,  expressing 
their  sense,  that  the  power  to  erect  trading  com 
panies  or  corporations  was  inherent  in  Congress,  and 
objecting  to  it  no  further  than  as  to  the  grant  of 
exclusive  privileges. 

The  Secretary  entertains  all  the  doubts  which  pre 
vail  concerning  the  utility  of  such  companies,  but 
he  cannot  fashion  to  his  own  mind  a  reason,  to  in 
duce  a  doubt,  that  there  is  a  constitutional  au 
thority  in  the  United  States  to  establish  them.  If 


National  Bank  489 

such  a  reason  were  demanded,  none  could  be  given, 
unless  it  were  this:  That  Congress  cannot  erect  a 
corporation.  Which  would  be  no  better  than  to  say, 
they  cannot  do  it,  because  they  cannot  do  it — first 
presuming  an  inability,  without  reason,  and  then 
assigning  that  inability  as  the  cause  of  itself.  Illus 
trations  of  this  kind  might  be  multiplied  without 
end.  They  shall,  however,  be  pursued  no  further. 

There  is  a  sort  of  evidence  on  this  point,  arising 
from  an  aggregate  view  of  the  Constitution,  which  is 
of  no  inconsiderable  weight :  the  very  general  power 
of  laying  and  collecting  taxes,  and  appropriating 
their  proceeds — that  of  borrowing  money  indefinite 
ly — that  of  coining  money,  and  regulating  foreign 
coins — that  of  making  all  needful  rules  and  regula 
tions  respecting  the  property  of  the  United  States. 
These  powers  combined,  as  well  as  the  reason  and 
nature  of  the  thing,  speak  strongly  this  language: 
that  it  is  the  manifest  design  and  scope  of  the  Con 
stitution  to  vest  in  Congress  all  the  powers  requisite 
to  the  effectual  administration  of  the  finances  of  the 
United  States.  As  far  as  concerns  this  object,  there 
appears  to  be  no  parsimony  of  power. 

To  suppose,  then,  that  the  government  is  pre 
cluded  from  the  employment  of  so  usual  and  so  im 
portant  an  instrument  for  the  administration  of  its 
finances  as  that  of  a  bank,  is  to  suppose  what  does 
not  coincide  with  the  general  tenor  and  complexion 
of  the  Constitution,  and  what  is  not  agreeable  to  im 
pressions  that  any  new  spectator  would  entertain 
concerning  it. 

Little  less  than  a  prohibitory  clause  can  destroy 


490  Alexander  Hamilton 

the  strong  presumptions  which  result  from  the  gen 
eral  aspect  of  the  government.  Nothing  but  demon 
stration  should  exclude  the  idea  that  the  power 
exists. 

In  all  questions  of  this  nature,  the  practice  of  man 
kind  ought  to  have  great  weight  against  the  theories 
of  individuals. 

The  fact,  for  instance,  that  all  the  principal  com 
mercial  nations  have  made  use  of  trading  cor 
porations  or  companies,  for  the  purpose  of  external 
commerce,  is  a  satisfactory  proof  that  the  establish 
ment  of  them  is  an  incident  to  the  regulation  of  the 
commerce. 

This  other  fact,  that  banks  are  a  usual  engine  in 
the  administration  of  national  finances,  and  an  ordi 
nary  and  most  effectual  instrument  of  loan,  and  one 
which,  in  this  country,  has  been  found  t  essential, 
pleads  strongly  against  the  supposition  that  a  gov 
ernment,  clothed  with  most  of  the  most  important 
prerogatives  of  sovereignty  in  relation  to  its  reven 
ues,  its  debts,  its  credits,  its  defence,  its  trade,  its 
intercourse  with  foreign  nations,  is  forbidden  to  make 
use  of  that  instrument  as  an  appendage  to  its  own 
authority. 

It  has  been  stated  as  an  auxiliary  test  of  constitu 
tional  authority,  to  try  whether  it  abridges  any  pre 
existing  right  of  any  State,  or  any  individual.  The 
proposed  investigation  will  stand  the  most  severe 
examination  on  this  point.  Each  State  may  still 
erect  as  many  banks  as  it  pleases.  Every  individual 
may  still  carry  on  the  banking  business  to  any  ex 
tent  he  pleases. 


National  Bank  491 

Another  criterion  may  be  this:  whether  the  in 
stitution  or  thing  has  a  more  direct  relation,  as  to  its 
uses,  to  the  objects  of  the  reserved  powers  of  the 
State  governments  than  to  those  of  the  powers  dele 
gated  by  the  United  States.  This  rule,  indeed,  is 
less  precise  than  the  former;  but  it  may  still  serve 
as  some  guide.  Surely  a  bank  has  more  reference 
to  the  objects  intrusted  to  the  National  Government 
than  to  those  left  to  the  care  of  the  State  govern 
ments.  The  common  defence  is  decisive  in  this 
comparison. 

It  is  presumed  that  nothing  of  consequence  in 
the  observations  of  the  Secretary  of  State  and  the 
Attorney-General  has  been  left  unnoticed. 

There  are,  indeed,  a  variety  of  observations  of  the 
Secretary  of  State  designed  to  show  that  the  utilities 
ascribed  to  a  bank,  in  relation  to  the  collection  of 
taxes,  and  to  trade,  could  be  obtained  without  it; 
to  analyze  which,  would  prolong  the  discussion  be 
yond  all  bounds.  It  shall  be  forborne  for  two  reasons. 
First,  because  the  report  concerning  the  bank  may 
speak  for  itself  in  this  respect;  and  secondly,  be 
cause  all  those  observations  are  grounded  on  the 
erroneous  idea  that  the  quantum  of  necessity  or 
utility  is  the  test  of  a  constitutional  exercise  of  power. 

One  or  two  remarks  only  shall  be  made.  One  is, 
that  he  has  taken  no  notice  of  a  very  essential  advant 
age  to  trade  in  general,  which  is  mentioned  in  the 
report,  as  peculiar  to  the  existence  of  a  bank  circula 
tion,  equal  in  the  public  estimation  to  gold  and  sil 
ver.  It  is  this  that  renders  it  unnecessary  to  lock 
up  the  money  of  the  country,  to  accumulate  for 


492  Alexander  Hamilton 

months  successively,  in  order  to  the  periodical  pay 
ment  of  interest.  The  other  is  this:  that  his  argu 
ments  to  show  that  treasury  orders  and  bills  of 
exchange,  from  the  course  of  trade,  will  prevent  any 
considerable  displacement  of  the  metals,  are  founded 
on  a  particular  view  of  the  subject.  A  case  will 
prove  this.  The  sums  collected  in  a  State  may  be 
small  in  comparison  with  the  debt  due  to  it;  the 
balance  of  its  trade,  direct  and  circuitous  with  the 
seat  of  government,  may  be  even,  or  nearly  so ;  here, 
then,  without  bank-bills,  which  in  that  State  answer 
the  purpose  of  coin,  there  must  be  a  displacement  of 
the  coin,  in  proportion  to  the  difference  between  the 
sum  collected  in  the  State,  and  that  to  be  paid  in  it. 
With  bank-bills  no  such  displacement  would  take 
place,  or  as  far  as  it  did,  it  would  be  gradual  and  in 
sensible.  In  many  other  ways,  also,  would  there  be 
at  least  a  temporary  and  inconvenient  displacement 
of  the  coin,  even  where  the  course  of  trade  would 
eventually  return  it  to  its  proper  channels. 

The  difference  of  the  two  situations  in  point  of 
convenience  to  the  treasury,  can  only  be  appreciated 
by  one  who  experiences  the  embarrassments  of  mak 
ing  provision  for  the  payment  of  the  interest  on  a 
stock  continually  changing  place  in  thirteen  different 
places. 

One  thing  which  has  been  omitted  just  occurs, 
although  it  is  not  very  material  to  the  main  argu 
ment.  The  Secretary  of  State  affirms  that  the  bill 
only  contemplates  a  repayment,  not  a  loan,  to  the 
government.  But  here  he  is  certainly  mistaken.  It 
is  true  the  government  invests  in  the  stock  of  the 


National  Bank  493 

bank  a  sum  equal  to  that  which  it  receives  on  loan. 
But  let  it  be  remembered,  that  it  does  not,  therefore, 
cease  to  be  a  proprietor  of  the  stock,  which  would  be 
the  case  if  the  money  received  back  were  in  the  na 
ture  of  a  payment.  It  remains  a  proprietor  still,  and 
will  share  in  the  profit  or  loss  of  the  institution,  ac 
cording  as  the  dividend  is  more  or  less  than  the 
interest  it  is  to  pay  on  the  sum  borrowed.  Hence 
that  sum  is  manifestly,  and  in  the  strictest  sense,  a 
loan.1 

1  Washington  after  careful  consideration  adopted  the  opinion  of 
Hamilton  and  signed  the  bill.  The  national  bank  thus  established 
conformed,  except  in  a  few  points,  with  the  plan  proposed  by  Hamil 
ton  while  the  principles,  the  guiding  lines,  and  the  great  central  idea 
were  all  his.  The  policy  thus  begun  has  prevailed,  with  one  or  two 
intervals,  throughout  our  subsequent  history,  and  seems  now  to  have 
become  a  permanent  part  of  our  financial  system. 

The  charter  of  Hamilton's  bank  expired  in  1811.  Two  years  before 
that  date  the  bank  petitioned  for  a  recharter,  and  Gallatin  sent  in  a 
report  strongly  favoring  the  policy,  although  suggesting  some  modi 
fications  of  the  charter.  It  was  too  late  for  action  and  the  matter 
went  over  to  the  next  Congress  (1810),  when  a  bill  was  introduced  in 
the  House  founded  on  Gallatin's  report.  At  the  same  time  a  bill  for 
a  new  bank  was  introduced  in  the  Senate.  It  was  charged  that  the 
old  bank  was  a  Federalist  concern.  The  Democrats,  although  they 
had  recognized  its  constitutionality  by  several  acts,  began  to  declaim 
against  it ;  the  two  schemes  clashed,  and  the  whole  matter  went  over 
to  the  next  session.  The  old  bank  then  applied  again  for  a  renewal, 
and  was  again  strongly  supported  by  Gallatin.  It  was  resisted  by 
the  enemies  of  the  Secretary  and  by  those  speculating  in  State  banks. 
The  House  indefinitely  postponed  it — sixty-five  to  sixty-four.  In  the 
Senate  the  enacting  clause  was  stricken  out  by  the  casting  vote  of 
Vice- President  Clinton,  who  rested  his  objection  simply  on  the  ground 
that  the  new  charter  left  the  bank  a  private  and  exclusive  corpora 
tion  beyond  the  control  of  the  government  (1811). 

The  loss  of  the  bank  was  severely  felt  during  the  stress  of  the  war, 
which  began  in  the  next  year,  and  the  financial  confusion  which  fol 
lowed.  To  revive  our  broken  credit  and  re-establish  our  currency, 
Dallas  (1814)  proposed  a  bank  before  the  close  of  the  war,  with  power 
to  issue  irredeemable  paper  money.  After  a  sharp  conflict  bills  were 


494  Alexander  Hamilton 

brought  in,  in  conformity  to  Dallas'  report.  Calhoun  met  this  scheme 
with  one  of  his  own  for  a  private  bank  not  allowed  to  suspend  specie 
payment  nor  compelled  to  lend  to  the  government.  After  a  close  and 
exciting  struggle  a  compromise  plan,  agreeing  in  the  main  with  Cal- 
houn's,  was  passed  and  sent  to  the  President,  who  vetoed  it  as  inade 
quate  for  the  needs  of  the  time. 

The  confusion  and  distress,  however,  continued,  and  the  govern 
ment  was  unable  to  pay  in  specie.  Dallas,  therefore,  determined  to 
try  for  a  bank  once  more.  He  reported  a  plan  substantially  the  same 
as  Hamilton's,  and  this  scheme,  ardently  supported  by  Calhoun  as 
well  as  by  Clay,  who  had  changed  his  views  since  1811,  passed  both 
Houses  with  slight  modifications,  was  signed  by  Madison,  and  became 
law  (1816). 

Three  years  later  the  question  of  the  constitutionality  of  the  bank 
came  before  the  Supreme  Court  in  the  case  of  McCullough  vs.  Mary 
land.  Marshall  delivered  the  opinion  of  the  court,  which  was  unani 
mous.  That  opinion,  one  of  the  ablest  of  Marshall's  decisions,  strongly 
affirmed  the  constitutionality  of  the  bank,  and  should  be  read  in  con 
junction  and  compared  with  Hamilton's  Cabinet  opinion.  Nothing 
shows  Hamilton's  power  of  argument  and  statement,  and  his  ability 
as  a  constitutional  lawyer  better  than  this  most  severe  test. 

When  the  bank  next  came  before  the  public  it  was  in  the  fierce 
struggle  with  Andrew  Jackson,  which  began  in  1830  and  ended  with 
the  overthrow  of  the  bank  in  1836.  The  bank  had  been  held  to  be 
constitutional  by  the  Congress  of  1791,  by  Washington  when  he  signed 
the  bill,  by  Jefferson  when  he  signed  bills  to  establish  its  branches  in 
the  Territories,  by  the  Congress  of  1816,  by  Madison  when  he  put  his 
name  to  the  charter  of  the  second  bank,  and  finally  by  the  whole 
Supreme  Court  with  Marshall  at  its  head.  But  Jackson  knew  more 
than  all  these,  and  considered  them  of  no  authority;  in  fact,  with  his 
profound  legal  knowledge,  he  was  able  to  point  out  the  obvious  errors 
of  Marshall.  He  vetoed  the  bank  bill,  resting  his  veto  on  all  sorts  of 
grounds,  and  chief  among  them  its  unconstitutionality.  Then  came 
the  "pet  banks,"  receiving  the  deposits  of  government,  then  a  brief 
fever  of  speculation,  and  finally  the  crash  of  1837,  which,  on  the  whole, 
was  the  most  remarkable  feat  and  the  most  memorable  achievement 
of  the  hero  of  New  Orleans. 

After  the  effects  of  the  panic  of  1837  had  passed  away,  there  were 
some  futile  efforts  to  revive  the  bank,  and  then  the  country  was  forced 
back  upon  local  institutions.  The  danger,  inconvenience,  and  utter 
inefficiency  of  the  State  banks  are  still  freshly  remembered.  The 
country  groaned  and  chafed  under  them  for  more  than  twenty  years, 
until  the  Republican  party  came  into  power  and  established  the  pres 
ent  system  of  national  banks.  The  new  plan  did  away  with  the 
State  banks  by  absorbing  them  and  thus  destroying  the  active  and 


National  Bank  495 

interested  opposition  which  confronted  the  old  Bank  of  the  United 
States  and  its  predecessor.  The  present  system  seems  to  be  firmly 
and  permanently  established.  It  embodies  Hamilton's  two  great 
principles — national  banking,  supervized  by  the  Central  Government, 
and  a  national-bank  currency.  Hamilton's  policy  of  national  banking 
has  become  an  integral  part  of  our  financial  system,  and  has  prevailed 
over  all  the  attacks  which  have  been  made  upon  it.  There  is  another 
side  however  to  the  question  more  important  than  its  financial  results. 
This  is  the  constitutional  argument  employed  by  Hamilton  in  his 
cabinet  opinion  to  which  allusion  has  been  made  in  a  previous  note. 
In  this  famous  cabinet  opinion  Hamilton  summoned  to  his  aid  the 
doctrine  of  the  tinimplied  powers  of  the  Constitution,  and  the  estab 
lishment  of  the  bank  was  the  first  triumph  of  that  principle  which  has 
done  more  than  anything  else  to  build  up  and  strengthen  the  power 
of  the  National  Government. 


END  OP  VOL.  III. 


UNIVERSITY  OF  CALIFORNIA  AT  LOS  ANGELES 

THE  UNIVERSITY  LIBRARY 
This  book  is  DUE  on  the  last  date  stamped  below 

91100'  RECEIVD 

ID-URL 


NOV2  01950 
JAN  17  1957 

MC271M? 


MAR  16 

AM 

7.4          49 

A 


HOV17 

2  0  1961 


PEC  2  6  1973 


66 


9     1O 


A     000212867     6 


E 

302 
H18 
v.3 


